Toggle SGML Header (+)


Section 1: DEF 14A (DEF 14A)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

SCHEDULE 14A
(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
 

Filed by the Registrant:
ý
Filed by a Party other than the Registrant:
o
Check the appropriate box:
 
o
Preliminary Proxy Statement
 
o
Confidential, for Use of the Commission Only (as Permitted by Rule 14a-6(e)(2))
 
x
Definitive Proxy Statement
 
o
Definitive Additional Materials
 
o
Soliciting Material Pursuant to §240.14a-12
REDWOOD TRUST, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
 
ý
No fee required.
 
o
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:
 
o
Fee paid previously with preliminary materials.
 
o
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:





403750552_rwtlogo2ca01.jpg


April 27, 2020
Dear Fellow Stockholders,
By all accounts, 2019 was a historic year for Redwood Trust as we achieved several major milestones while celebrating our 25-year anniversary. We made significant progress towards realizing our vision of expanding our reach across all major throughways of housing finance. This included two strategic acquisitions and the expansion of our best-in-class securitization platform. We ended 2019 with full year GAAP earnings of $1.46 per share, and in February 2020 achieved our highest market capitalization ever as a public company.

We entered the first quarter of 2020 building on the momentum we had gained over the past year. While January and February were filled with optimism and opportunities for growth, including record monthly loan volumes, dynamics quickly shifted as the spread of the novel coronavirus (COVID-19) accelerated into a global pandemic by mid-March. This resulted in a significant dislocation in the financial markets and, seemingly overnight, an evaporation of liquidity, resulting in one of the fastest market declines in history.

The spread of COVID-19 is having a significant impact on the U.S. economy, and while our sector was not the cause of the ensuing market turmoil in which we now find ourselves, the mortgage finance markets have been hit particularly hard nonetheless. In a very short period of time we’ve made significant progress managing our liquidity through this crisis and we continue to take significant and deliberate actions across our platform to support our franchise. On April 2, 2020, we published a company update, which outlined some of the actions we have taken in response to this shifting business and financial landscape. This update can be found as a Current Report on Form 8-K within the “Investor Information-SEC Filings” section of our website at www.redwoodtrust.com.
Redwood was founded on a culture of strong risk management, and that culture continues to be the cornerstone of how we are managing through these very difficult times. While it’s too early to say when Americans can safely get our economy fully functioning again, we remain fully committed to Redwood and its stockholders as we do everything in our power to navigate through this crisis and hopefully be in a position to rebuild upon the successes we enjoyed in 2019.
Thank you for your continued support.             
 
403750552_rb2photoshop003.jpg
 
403750552_ca2copy002042220.jpg
 
 
Richard D. Baum
 
Christopher J. Abate
 
 
Chairman
 
Chief Executive Officer
 





REDWOOD TRUST, INC.
One Belvedere Place, Suite 300
Mill Valley, California 94941
(415) 389-7373
NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Redwood Trust, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of Redwood Trust, Inc., a Maryland corporation, to be held on June 11, 2020 at 8:30 a.m., local time, at the Acqua Hotel, 555 Redwood Highway, Mill Valley, California 94941, for the following purposes:
1.
To elect Richard D. Baum, Christopher J. Abate, Douglas B. Hansen, Debora D. Horvath, Greg H. Kubicek, Fred J. Matera, Jeffrey T. Pero, and Georganne C. Proctor to serve as directors until the Annual Meeting of Stockholders in 2021 and until their successors are duly elected and qualify;
2.
To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for 2020;
3.
To vote on a non-binding advisory resolution to approve named executive officer compensation;
4.
To vote on an amendment to our charter to increase the number of shares authorized for issuance;
5.
To vote on an amendment to our Amended and Restated 2014 Incentive Award Plan to increase the number of shares authorized for issuance thereunder; and
6.
To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.
We have elected to use the Internet as our primary means of providing our proxy materials to stockholders. Consequently, stockholders will not receive paper copies of our proxy materials unless they specifically request them. We will send a Notice of Internet Availability of Proxy Materials (the Notice) on or about May 1, 2020 to our stockholders of record as of the close of business on March 20, 2020. We are also providing access to our proxy materials over the Internet beginning on May 1, 2020. Electronic delivery of our proxy materials will reduce printing and mailing costs relating to our Annual Meeting.
The Notice contains instructions for accessing the proxy materials, including the Proxy Statement and our annual report, and provides information on how stockholders may obtain paper copies free of charge. The Notice also provides the date and time of the Annual Meeting; the matters to be acted upon at the Annual Meeting and the Board’s recommendation with regard to each matter to be acted upon; and information on how to attend the Annual Meeting and vote online.
Our Board of Directors has fixed the close of business on March 20, 2020 as the record date for determination of stockholders entitled to notice of, and to vote at, the Annual Meeting and any adjournment or postponement of the Annual Meeting.
We would like your shares to be represented at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, we respectfully request that you authorize your proxy over the Internet following the voting procedures described in the Notice. In addition, if you have requested or received a paper or email copy of the proxy materials, you can authorize your proxy over the telephone or by signing, dating and returning the proxy card sent to you. We encourage you to authorize your proxy by any of these methods even if you currently plan to attend the Annual Meeting. By doing so, you will ensure that your shares are represented and voted at the Annual Meeting.
Due to the impact of the coronavirus (COVID-19) pandemic on the ability to hold in-person meetings, we 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 announce the decision to do so in advance, and details on how to participate will be set forth in a subsequent announcement by the Company and available at www.redwoodtrust.com.
By Order of the Board of Directors,
/s/ Andrew P. Stone
Secretary
April 27, 2020
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY AUTHORIZE A PROXY TO CAST YOUR VOTES THROUGH THE INTERNET FOLLOWING THE VOTING PROCEDURES DESCRIBED IN THE NOTICE OR, IF YOU HAVE REQUESTED AND RECEIVED PAPER COPIES OF THE PROXY MATERIALS, BY TELEPHONE OR BY SIGNING, DATING AND RETURNING THE PROXY CARD SENT TO YOU.




TABLE OF CONTENTS
                     Financial Results

i





REDWOOD TRUST, INC.
One Belvedere Place, Suite 300
Mill Valley, California 94941
(415) 389-7373


PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 11, 2020 



INTRODUCTION

This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors of Redwood Trust, Inc., a Maryland corporation (Redwood, the Company, we, or us), for exercise at the Annual Meeting of Stockholders (the Annual Meeting) to be held on June 11, 2020 at 8:30 a.m., local time, at the Acqua Hotel, 555 Redwood Highway, Mill Valley, California 94941, and at any adjournment or postponement thereof.

We have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the Notice) to our stockholders of record, while brokers and other nominees who hold shares on behalf of beneficial owners will be sending their own similar Notice of Internet Availability of Proxy Materials. All stockholders will have the ability to access proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to request a printed copy by mail or electronically may be found on the Notice and on the website referred to in the Notice, including an option to request paper copies on an ongoing basis. We intend to make this Proxy Statement available on the Internet on or about May 1, 2020 and to mail the Notice to all stockholders entitled to vote at the Annual Meeting on or about May 1, 2020. We intend to mail this Proxy Statement, together with a proxy card, to those stockholders entitled to vote at the Annual Meeting who have properly requested paper copies of such materials on or about May 1, 2020 or within three business days of such request.

The address and telephone number of our principal executive office are as set forth above and our website is www.redwoodtrust.com. Information on our website is not a part of this Proxy Statement.

Due to the impact of the coronavirus (COVID-19) pandemic on the ability to hold in-person meetings, we 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 announce the decision to do so in advance, and details on how to participate will be set forth in a subsequent announcement by the Company and available at www.redwoodtrust.com.



1



INFORMATION ABOUT THE ANNUAL MEETING

Who May Attend the Annual Meeting

Only stockholders who own our common stock as of the close of business on March 20, 2020, the record date for the Annual Meeting, will be entitled to attend the Annual Meeting. In the discretion of management, we may permit certain other individuals to attend the Annual Meeting, including members of the media and our employees.

Who May Vote

Each share of our common stock outstanding on the record date for the Annual Meeting entitles the holder thereof to one vote. The record date for determining stockholders entitled to notice of, and to vote at, the Annual Meeting is the close of business on March 20, 2020. As of March 20, 2020, there were 114,816,284 shares of common stock issued and outstanding. You can vote in person at the Annual Meeting or by proxy. You may authorize your proxy through the Internet by following the voting procedures described in the Notice or, if you have requested and received paper copies of the proxy materials, by telephone or by signing, dating, and returning the proxy card sent to you. To use a particular voting procedure, follow the instructions on the Notice or the proxy card that you request and receive by mail or email.

If your shares are held in the name of a bank, broker, or other holder of record, you will receive instructions from the holder of record that you must follow in order for your shares to be voted. If your shares are not registered in your own name and you plan to cast your votes in person at the Annual Meeting, you should contact your broker or agent to obtain a broker’s proxy card and bring it to the Annual Meeting in order to vote.


Voting by Proxy; Board of Directors’ Voting Recommendations

You may authorize your proxy over the Internet or, if you request and receive a proxy card by mail or email, over the phone or by signing, dating and returning the proxy card sent to you. If you vote by proxy, the individuals named on the proxy, or their substitutes, will cast your votes in the manner you indicate. If you date, sign, and return a proxy card without marking your voting instructions, your votes will be cast in accordance with the recommendations of Redwood’s Board of Directors, as follows:
For the election of each of the eight nominees to serve as directors until the Annual Meeting of Stockholders in 2021 and until their successors are duly elected and qualify;
For the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for 2020;
For the approval of the non-binding advisory resolution approving the compensation of our named executive officers;
For the approval of the amendment to our charter to increase the number of shares authorized for issuance;
For the approval of the amendment to the Amended and Restated 2014 Incentive Award Plan to increase the number of shares authorized for issuance; and
In the discretion of the proxy holder on any other matter that properly comes before the Annual Meeting.
You may revoke or change your proxy at any time before it is exercised by submitting a new proxy through the Internet or by telephone, delivering to us a signed proxy with a date later than your previously delivered proxy, by voting in person at the Annual Meeting, or by sending a written revocation of your proxy addressed to Redwood’s Secretary at our principal executive office.


2



Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

Under rules adopted by the Securities and Exchange Commission (SEC), we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending the Notice to our stockholders. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. We encourage stockholders to take advantage of the availability of the proxy materials on the Internet to help reduce printing and mailing costs relating to our Annual Meeting.

Quorum Requirement

The presence, in person or by proxy, of stockholders entitled to cast a majority of all the votes entitled to be cast at the Annual Meeting constitutes a quorum for the transaction of business. Abstentions and broker non-votes are counted as present for purposes of establishing a quorum. A broker non-vote occurs when a nominee holding shares for a beneficial owner has not received instructions from the beneficial owner and does not have discretionary authority to vote the shares.

Other Matters

Our Board of Directors knows of no other matters that may be presented for stockholder action at the Annual Meeting. If other matters properly come before the Annual Meeting, however, it is intended that the persons named in the proxies will vote on those matters in their discretion.

Information About the Proxy Statement and the Solicitation of Proxies

Your proxy is solicited by our Board of Directors and we will bear the costs of this solicitation. Proxy solicitations will be made by mail, and also may be made by our directors, officers, and employees in person or by telephone, facsimile transmission, e-mail, or other means of communication. Banks, brokerage houses, nominees, and other fiduciaries will be requested to forward the proxy soliciting material to the beneficial owners of shares of our common stock entitled to be voted at the Annual Meeting and to obtain authorization for the execution of proxies on behalf of beneficial owners. We will, upon request, reimburse those parties for their reasonable expenses in forwarding proxy materials to their beneficial owners.

In addition, we have retained MacKenzie Partners, Inc., 1407 Broadway, 27th Floor, New York, NY 10018, to aid in the solicitation of proxies by mail, telephone, facsimile, e-mail and personal solicitation and to contact brokerage houses and other nominees, fiduciaries and custodians to request that such entities forward soliciting materials to beneficial owners of our common stock. For these services, we will pay MacKenzie Partners, Inc. a fee not expected to exceed $15,000, plus expenses.

Annual Report

Our 2019 Annual Report, consisting of our Annual Report on Form 10-K for the year ended December 31, 2019, is being made available to stockholders together with this Proxy Statement and contains financial and other information about Redwood, including audited financial statements for our fiscal year ended December 31, 2019. Certain sections of our 2019 Annual Report are incorporated into this Proxy Statement by reference, as described in more detail under “Information Incorporated by Reference” at the end of this Proxy Statement. Our 2019 Annual Report is also available on our website.


3



Householding

We have adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders of record who have the same address and last name will receive only one copy of the Notice, unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure reduces our printing and mailing costs.

Householding will not in any way affect dividend check mailings.

If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of the Notice, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of this document for your household, please contact our transfer agent, Computershare Trust Company, N.A., either in writing at: Computershare Investor Services, 250 Royall Street, Canton, MA 02021; or by telephone at: (888) 472-1955.

If you participate in householding and wish to receive a separate copy of the Notice, or if you do not wish to participate in householding and prefer to receive separate copies of this document in the future, please contact Computershare as indicated above.

Beneficial owners can request information about householding from their banks, brokers, or other holders of record.


4



CORPORATE GOVERNANCE

Corporate Governance Standards

Our Board of Directors has adopted Corporate Governance Standards (Governance Standards). Our Governance Standards are available on our website as well as in print at the written request of any stockholder addressed to Redwood’s Secretary at our principal executive office. The Governance Standards contain general principles regarding the composition and functions of our Board of Directors and its committees.

Process for Nominating Potential Director Candidates

Identifying and Evaluating Nominees for Directors.  Our Board of Directors nominates director candidates for election by stockholders at each annual meeting and elects new directors to fill vacancies on our Board of Directors between annual meetings of the stockholders. Our Board of Directors has delegated the selection and initial evaluation of potential director nominees to the Governance and Nominating Committee with input from the Chief Executive Officer and President. The Governance and Nominating Committee makes the final recommendation of candidates to our Board of Directors for nomination. Our Board of Directors, taking into consideration the assessment of the Governance and Nominating Committee, also determines whether a nominee would be an independent director.

Stockholders’ Nominees.  Our Bylaws permit stockholders to nominate a candidate for election as a director at an annual meeting of the stockholders subject to compliance with certain notice and informational requirements, as more fully described below in this Proxy Statement under “Stockholder Proposals for the 2021 Annual Meeting.” A copy of the full text of our current Bylaws may be obtained by any stockholder upon written request addressed to Redwood’s Secretary at our principal executive office. Among other matters required under our Bylaws, any stockholder nominations should include the nominee’s name and qualifications for Board membership and should be addressed to Redwood’s Secretary at our principal executive office.

The policy of the Governance and Nominating Committee is to consider properly submitted stockholder nominations for candidates for election to our Board of Directors. The Governance and Nominating Committee evaluates stockholder nominations in connection with its responsibilities set forth in its written charter and applies the qualification and diversity criteria set forth in the Governance Standards.

Director Qualifications.  Our Governance Standards contain Board membership criteria that apply to nominees for our Board of Directors. Each member of our Board of Directors must exhibit high standards of integrity, commitment, and independence of thought and judgment, and must be committed to promoting the best interests of Redwood. In addition, each director must devote the time and effort necessary to be a responsible and productive member of our Board of Directors. This includes developing knowledge about Redwood’s business operations and doing the work necessary to participate actively and effectively in Board and committee meetings.

Our Governance Standards also contain criteria that are intended to guide our Governance and Nominating Committee’s considerations of diversity in identifying nominees for our Board of Directors. In particular, our Governance Standards provide that the members of our Board of Directors should collectively possess a broad range of talent, skill, expertise, background, and life experience useful to effective oversight of our business and affairs and sufficient to provide sound and prudent guidance with respect to our operations and interests. The self-assessments that are conducted each year by our Board of Directors and our Governance and Nominating Committee include an assessment of whether the Board’s then current composition represents the broad range of talent, skill, expertise, background, and life experience that is called for by our Governance Standards.


5



We believe our directors have a well-rounded variety of diversity, skills, qualifications and experience, and represent an effective mix of deep company knowledge and outside perspectives. Additional information regarding the mix of experience, qualifications, attributes and skills of our directors is included under Item 1 Election of Directors on pages 11-16 of this Proxy Statement.

Director Independence

As required under Section 303A of the New York Stock Exchange (NYSE) Listed Company Manual and our Governance Standards, on February 26, 2020 our Board of Directors affirmatively determined that none of the following directors have a material relationship (either directly or as a partner, shareholder, or officer of an organization that has a relationship) with us and that each of them qualifies as “independent” under Section 303A: Richard D. Baum, Douglas B. Hansen, Mariann Byerwalter, Debora D. Horvath, Greg H. Kubicek, Fred J. Matera, Jeffrey T. Pero, and Georganne C. Proctor. The Board of Directors’ determination was made with respect to Mr. Pero after consideration of the following: Mr. Pero is a retired partner of Latham & Watkins LLP and has been a director of Redwood since November 2009; Latham & Watkins LLP provides legal services to Redwood; and retirement payments made by Latham & Watkins LLP to Mr. Pero during 2019 and prior years were adjusted to exclude any proportionate benefit received from the fees paid by Redwood to Latham & Watkins LLP.

One member of our Board of Directors, Mr. Abate, does not qualify as “independent” under Section 303A of the NYSE Listed Company Manual or our Governance Standards because he is Redwood's Chief Executive Officer.

Board Leadership Structure

At Redwood, there is a separation of the chairman and chief executive officer roles. The Chairman of the Board of Directors presides over meetings of the Board and serves as a liaison between the Board and management of Redwood. In addition, the Chairman provides input regarding Board agendas, materials, and areas of focus, and may represent Redwood to external constituencies such as investors, governmental representatives, and business counterparties. The Chairman is currently Richard D. Baum, who was elected Chairman in September 2012 and who has continuously served as an independent director of Redwood since 2001.

In addition, under the Governance Standards, each of the Audit Committee, Compensation Committee, and Governance and Nominating Committee of Redwood’s Board of Directors is comprised solely of independent directors as members.

The Board believes this leadership structure is appropriate for Redwood, as it provides for the Board to be led by, and its standing committees to be comprised of, independent directors. As an independent Chairman of the Board, Mr. Baum brings nearly two decades of experience of serving on Redwood’s Board along with the important perspective of an independent director to this leadership position.

Executive Sessions

Our Governance Standards require that our non-employee directors (i.e., the eight of our nine current directors who are not Redwood employees) meet in executive session at each regularly scheduled quarterly meeting of our Board of Directors and at such other times as determined by our Chairman. In addition, if any non-employee director is not also an independent director, then our Governance Standards require that our independent directors meet at least annually in executive session without any such non-independent directors.


6



Board of Directors’ Role in Risk Oversight

The Board of Directors takes a primary role in risk oversight. At its regular meetings, the Board of Directors reviews Redwood’s business and investment strategies and plans and seeks an understanding of the related risks as well as management’s approach to identifying and managing those risks. In carrying out its role in risk oversight, the Board of Directors receives and discusses quarterly reports from the Chief Executive Officer and Audit Committee, which also carries out a risk oversight function delegated by the Board of Directors.

Under its charter, the Audit Committee is specifically charged with (i) inquiring of management and Redwood’s independent registered public accounting firm about significant risks or exposures with respect to corporate accounting, reporting practices of Redwood, the quality and integrity of the financial reports and controls of Redwood, regulatory and accounting initiatives, and any off-balance sheet structures and (ii) assessing the steps management has taken to minimize such risks. In addition, the Audit Committee is specifically charged with regularly discussing with management Redwood’s policies with respect to risk assessment and risk management, including identification of Redwood’s major financial and operational risk exposures and the steps management has taken to monitor or control those exposures. For example, the Audit Committee receives quarterly reports from management regarding various financial risk management topics (such as interest rate risk, liquidity risk, and counterparty risk), and various operational risk management topics (such as cybersecurity, operations and regulatory compliance) and regularly discusses with management Redwood's exposure to, and management of, financial and operational risks.

The Audit Committee carries out this function by, among other things, receiving a quarterly risk management report from Redwood’s Chief Executive Officer and other Redwood officers, and a quarterly internal audit report from Redwood’s head of internal audit, reviewing these reports, and discussing them by asking questions and providing direction to management. In addition, as noted below under “Audit Committee Matters — Audit Committee Report,” the Audit Committee also receives and discusses regular and required communications from Redwood’s independent registered public accounting firm regarding, among other things, Redwood’s internal controls. In addition to discussion of these reports during Audit Committee meetings, as circumstances merit, the Audit Committee holds separate executive sessions with one or more of the Chief Executive Officer, Redwood’s head of internal audit, and representatives of Redwood’s independent registered public accounting firm to discuss any matters that the Audit Committee or these persons believe should be discussed in the absence of other members of management. Redwood's head of internal audit and the Chair of the Audit Committee also regularly communicate between Audit Committee meetings.

In addition, when appropriate, the Board of Directors may delegate to the Compensation Committee and Governance and Nominating Committee risk oversight responsibilities with respect to certain matters or request that other committees review certain risk oversight matters. For example, the Compensation Committee has been delegated the responsibility for determining, on an annual basis, whether Redwood’s compensation policies and practices are reasonably likely to have a material adverse effect on Redwood. As another example, the Governance and Nominating Committee reports to the Board of Directors the results of its analysis of potential risks related to board leadership and composition, board structure, and executive succession planning.

The Board of Directors believes that this manner of administering the risk oversight function effectively integrates oversight into the Board of Directors’ leadership structure, because the risk oversight function is carried out both at the Board level as well as through delegation to the Audit Committee, which consists solely of independent directors, and when appropriate to the Compensation Committee and Governance and Nominating Committee, which also consist solely of independent directors.


7



Corporate Responsibility

Corporate responsibility and sustainability are foundational to Redwood’s ability to grow and deliver attractive risk-adjusted returns to stockholders over the long term. The sustainability of Redwood’s business depends on a broad array of factors, including a continuing focus on investments in our people, ethics and integrity, and corporate responsibility. Taking these factors into consideration in making strategic and operational decisions is a key principle in continuing to position Redwood as a best-in-class specialty finance company that addresses the liquidity needs of all homebuyers – homeowners and investors alike. Strong corporate governance, coupled with sound financial and operational risk management, are also essential pillars that support Redwood’s growth and sustainability. Redwood’s leaders and managers collaborate to develop and maintain corporate responsibility and sustainability initiatives, measure their impact, and provide regular updates to Redwood’s Board of Directors and its standing committees. Additional information about Redwood’s corporate responsibility and sustainability programs and initiatives may be provided from time to time on Redwood’s corporate website at www.redwoodtrust.com.

Board of Directors’ Self-Evaluation Process

The Board believes it is important to periodically assess its own performance and effectiveness in carrying out its strategic and oversight role with respect to the Company. The Board evaluates its performance through annual self-assessments at the Board and Committee levels, as well as through annual individual director self-assessments that include one-on-one meetings conducted by the Chairman with each of the other directors (or, with respect to the Chairman, the Chair of the Governance and Nominating Committee). These self-assessments include analysis of the effectiveness of the Board, its Committees and its directors, how they are functioning and areas of potential improvement. The results of these performance reviews are also considered, among other things, by the Governance and Nominating Committee and the Board when considering whether to recommend a director for re-election and whether to consider new director candidates.

Communications with the Board of Directors

Stockholders and other interested parties may communicate with our Board of Directors by e-mail addressed to [email protected] The Chairman has access to this e-mail address and provides access to other directors as appropriate. Communications that are intended specifically for non-employee directors should be addressed to the Chairman.

Director Attendance at Annual Meetings of Stockholders

Pursuant to our Governance Standards, our directors are expected to attend annual meetings of stockholders in person or telephonically. All of our directors attended last year’s annual meeting of stockholders in person. We currently expect all directors nominated for election to attend in person, or telephonically, at this year's Annual Meeting.

Code of Ethics

Our Board of Directors has adopted a Code of Ethics that applies to all of our directors, officers, and employees. Our Code of Ethics is available on our website as well as in print at the written request of any stockholder addressed to Redwood’s Secretary at our principal executive office.

We intend to post on our website and disclose in a Current Report on Form 8-K, to the extent required by applicable regulations, any change to the provisions of our Code of Ethics and any waiver of a provision of the Code of Ethics.


8



STOCK OWNERSHIP REQUIREMENTS

Required Stock Ownership by Directors

Pursuant to our Governance Standards, non-employee directors are required to purchase from their own funds at least $50,000 of our common stock within three years from the date of commencement of their Board membership. Vested deferred stock units (DSUs) acquired by a director under our Executive Deferred Compensation Plan through the voluntary deferral of cash compensation that otherwise would have been paid to that director are counted towards this requirement. Any director whose status has changed from being an employee director to being a non-employee director is not subject to this requirement if that director held at least $50,000 of our common stock at the time of that change in status.

Additionally, non-employee directors are required to own at least $425,000 of our common stock, including vested DSUs acquired through both voluntary and involuntary deferred compensation, within five years from the date of commencement of their Board membership. Beginning May 2020, this requirement will increase to $450,000 in connection with an increase in the annual cash retainer payable to non-employee directors (described below under the heading "Director Compensation") to ensure that ownership guidelines remain five times the annual retainer. Stock and DSUs acquired with respect to the $50,000 stock purchase requirement count toward the attainment of this additional stock ownership requirement. Compliance with the ownership requirements is measured on a purchase/acquisition cost basis.

As of the date of this Proxy Statement, all of our non-employee directors were in compliance with these requirements either due to ownership of the requisite number of shares or because the director was within the time period permitted to attain the required level of ownership.

Required Stock Ownership by Executive Officers

The Compensation Committee of our Board of Directors has set the following executive stock ownership requirements with respect to our executive officers:
Each executive officer is required to own stock with a value at least equal to (i) six times current salary for the Chief Executive Officer, (ii) three times current salary for the President, and (iii) two times current salary for the other executive officers;
Three years are allowed to initially attain the required level of ownership and three years are allowed to acquire additional incremental shares if promoted to a position with a higher requirement or when a salary increase results in a higher requirement (if not in compliance at the indicated times, then the executive officer is required to retain net after-tax shares delivered as compensation or from the Executive Deferred Compensation Plan until compliance is achieved);
All shares owned outright are counted, including those held in trust for the executive officer and his or her immediate family, as well as vested DSUs and any other vested shares held pursuant to other employee plans; and
Compliance with the guidelines is measured on a purchase/acquisition cost basis, and includes DSUs acquired through both voluntary and involuntary deferred compensation.


9



As of the date of this Proxy Statement, all of Redwood’s executive officers were in compliance with these requirements either due to ownership of the requisite number of shares or because he or she was within the time period permitted to attain the required level of ownership. The chart below illustrates the stock ownership level relative to the applicable requirement for each of our executive officers and Mr. Kanouse (who served as an executive officer in 2019).

  
403750552_eostockownershipusea01.jpg
Stock ownership is calculated on a purchase/acquisition price cost basis in accordance to Executive Ownership Requirements as of April 15, 2020.
* Mr. Abate, Mr. Robinson and Ms. Macomber are within the time period permitted to attain the increased level of ownership required for their executive officer roles, respectively. Initial ownership levels must be attained by May 2021 for Mr. Abate and Mr. Robinson and by December 2021 for Ms. Macomber. Incremental ownership levels due to the base salary increases made by the Compensation Committee in December 2019 for 2020 must be attained by January 2023.

10



ITEM 1 — ELECTION OF DIRECTORS

The nominees for the eight director positions are set forth below. In the event we are advised prior to the Annual Meeting that any nominee will be unable to serve or for good cause will not serve as a director if elected at the Annual Meeting, the proxies will cast votes for any person who shall be nominated by the present Board of Directors to fill such directorship. On April 9, 2020, Mariann Byerwalter announced that she is retiring from the Board of Directors, effective as of the 2020 Annual Meeting of Stockholders. Effective upon Ms. Byerwalter's retirement, the Board of Directors is expected to reduce the size of the Board from nine to eight directors. The nominees listed below currently are serving as directors of Redwood.

Vote Required

If a quorum is present, the election of each nominee as a director requires a majority of the votes cast with respect to such nominee at the Annual Meeting. For purposes of the election of directors, a majority of the votes cast means that the number of votes cast “for” a nominee for election as a director exceeds the number of votes cast “against” that nominee. Cumulative voting in the election of directors is not permitted. Abstentions and broker non-votes will not be counted as votes cast and will have no effect on the results of the vote in the election of directors. In accordance with Redwood’s Bylaws and its Policy Regarding Majority Voting, any incumbent nominee for director must offer to resign from the Board if he or she fails to receive the required number of votes for re-election.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE NOMINEES IDENTIFIED BELOW.

Nominees to Board of Directors
Name
 
Position with Redwood
Richard D. Baum
 
Chairman of the Board
Christopher J. Abate
 
Director and Chief Executive Officer
Douglas B. Hansen
 
Director
Debora D. Horvath
 
Director
Greg H. Kubicek
 
Director
Fred J. Matera
 
Director
Jeffrey T. Pero
 
Director
Georganne C. Proctor
 
Director

Set forth on the following pages is a summary of the experience, qualifications, attributes and skills of each of the nominees for election at the Annual Meeting, as well as certain biographical information regarding each of these individuals.


11



Summary of Director Nominees’ Experience, Qualifications, Attributes and Skills

 
Director Nominees
 
Baum
Abate
Hansen
Horvath
Kubicek
Matera
Pero
Proctor
Leadership
ü
ü
ü
ü
ü
ü
ü
ü
Real Estate Industry
ü
ü  
ü
  
ü
ü
ü
  
Accounting/Finance
  
ü
ü
ü
ü
ü
  
ü
Insurance Industry
ü
 
  
ü
  
 
  
ü
Government
ü
 
 
 
 
 
  
  
Capital Markets
  
ü
ü
 
 
ü
ü
ü
Corporate / Institutional
Governance
ü
 
  
ü
ü
 
ü
  
Banking / Investment
Management
  
 
  
ü
  
ü
  
ü
Technology
  
  
  
ü
  
 
  
  

Richard D. Baum, age 73, is Chairman of the Board and has been a director of Redwood since 2001. Mr. Baum is currently the President and Managing Partner of Atwater Retirement Village LLC (a private company). From 2008 to mid-2009, Mr. Baum served as Executive Director of the California Commission for Economic Development. He also served as the Chief Deputy Insurance Commissioner for the State of California from 1991 to 1994 and 2003 to 2007. Mr. Baum served from 1996 to 2003 as the President and CEO of Care West Insurance Company, a worker’s compensation insurance company, and prior to 1991 as Senior Vice President of Amfac, Inc., a diversified operating company engaged in various businesses, including real estate development and property management. Mr. Baum holds a B.A. from Stanford University, an M.A. from the State University of New York, and a J.D. from George Washington University, National Law Center.
The Board of Directors concluded that Mr. Baum should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:
Leadership attributes and management experience
Experience as a chief executive officer
Experience in government service and financial regulation
Expertise and experience relating to the insurance industry
Expertise and experience relating to the real estate development industry and property management business
Expertise and experience relating to institutional governance
Professional and educational background

12



Christopher J. Abate, age 40, has served as Chief Executive Officer since May 2018 and as a director since December 2017. Mr. Abate has been employed with Redwood since April 2006, previously serving as Redwood’s President from July 2016 to May 2018, Chief Financial Officer from March 2012 to August 2017, and Controller from January 2009 to March 2013. Before joining Redwood, Mr. Abate was employed by PricewaterhouseCoopers LLP. He holds a B.A. in accounting and finance from Western Michigan University, an M.B.A. from the University of California at Berkeley and Columbia University.
The Board of Directors concluded that Mr. Abate should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:
Leadership attributes and management experience, including experience as President, Chief Financial Officer, and Controller of Redwood
Skill and experience in managing balance sheet exposures and managing risks
Skill and experience in executing capital markets transactions
Finance and accounting expertise and experience
Professional and educational background
Douglas B. Hansen, age 62, is a founder of Redwood, and served as Redwood’s President from 1994 through 2008. Mr. Hansen retired from his position as President of Redwood at the end of 2008. Mr. Hansen has been a director of Redwood since 1994. Mr. Hansen serves on the Board of Directors of Four Corners Property Trust, Inc., a publicly traded real estate investment trust. Mr. Hansen also serves on the board of River of Knowledge, a not-for-profit institution. Mr. Hansen holds a B.A. in Economics from Harvard College and an M.B.A. from Harvard Business School.
The Board of Directors concluded that Mr. Hansen should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:
Leadership attributes and management experience, including experience as President of Redwood Trust since its founding in 1994 through 2008
Skill and experience in investing in real estate-related assets and managing portfolios of such investments
Skill and experience in managing balance sheet exposures and managing risks
Skill and experience in executing capital markets transactions
Experience in finance and accounting matters
Professional and educational background
Debora D. Horvath, age 65, has been a director of Redwood since 2016. Ms. Horvath is Principal of Horvath Consulting LLC, which she founded in 2010. From 2008 to 2010, Ms. Horvath served as an Executive Vice President for JP Morgan Chase & Co. Ms. Horvath served as an Executive Vice President and Chief Information Officer for Washington Mutual, Inc. from 2004 to 2008. Ms. Horvath, a 25-year veteran from General Electric Company (“GE”), served 12 years as a Senior Vice President and Chief Information Officer for the GE insurance businesses. Ms. Horvath has been a Director of StanCorp Financial Group, Inc. since 2013. She was a director of the Federal Home Loan Bank of Seattle from 2012 to January 2014. Ms. Horvath holds a B.A. from Baldwin Wallace University.
The Board of Directors concluded that Ms. Horvath should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:
Leadership attributes and management experience
Experience as a chief information officer
Expertise and experience relating to information technology and technology risk management
Expertise and experience relating to institutional governance
Professional and educational background

13



Greg H. Kubicek, age 63, has been a director of Redwood since 2002. Mr. Kubicek is President of The Holt Group, Inc., a real estate company and associated funds that purchase, develop, own, and manage real estate properties. Mr. Kubicek has also served as Chairman of the Board of Cascade Corporation, an international manufacturing corporation. Mr. Kubicek holds a B.A. in Economics from Harvard College.
The Board of Directors concluded that Mr. Kubicek should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:
Leadership attributes
Management and entrepreneurial experience
Expertise and experience in the real estate development industry
Experience and expertise in the property management business
Professional and educational background
Fred J. Matera, age 56, has been a director of Redwood since March 2019. Mr. Matera is currently Co-Founder and Managing Partner of MoVi Partners, LLC, an advisory firm focused on the fintech industry. Prior to this, Mr. Matera served as President of EquiFi Corporation, a startup developer of home equity-based financing solutions for homeowners, from October 2018 to March 2019. Between September 2016 and October 2017, Mr. Matera served as Chief Operating Officer and Chief Investment Officer of LendUS, LLC, which does business as RPM Mortgage, and engages in mortgage origination and servicing. From 2008 to May 2016, Mr. Matera was employed by Redwood, serving in various capacities, including: as Executive Vice President-Commercial Investments and Finance, responsible for the commercial mortgage banking and investments business Redwood was engaged in during that time; as Chief Investment Officer, responsible for Redwood’s investment and capital markets activities; and as a Managing Director. Prior to joining Redwood, beginning in 2001, Mr. Matera was a Managing Director and Co-Head of Structured Credit at RBS Greenwich Capital. He began his career in finance in 1989 as a mortgage trader, and has held a number of fixed income trading positions in financial services firms, including Goldman Sachs, DLJ, and First Boston. Prior to graduating from business school, Mr. Matera was an analyst at the Federal Reserve Bank of New York. Mr. Matera has a B.A. in economics from Tufts University, and an M.B.A. in finance from The Wharton School of the University of Pennsylvania.
The Board of Directors concluded that Mr. Matera should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:
Leadership attributes
Management and entrepreneurial experience
Expertise as a chief investment officer
Expertise and experience relating to residential and commercial mortgage finance, originations and operations
Expertise and experience in structuring and negotiating debt and equity financings
Professional and educational background








14



Jeffrey T. Pero, age 73, has been a director of Redwood since November 2009. Mr. Pero retired in October 2009, after serving as a partner for more than 23 years, from the international law firm of Latham & Watkins LLP. At Latham & Watkins LLP, Mr. Pero’s practice focused on advising clients regarding corporate governance matters, debt and equity financings, mergers and acquisitions, and compliance with U.S. securities laws; Mr. Pero also served in various firm management positions. Mr. Pero served on the Board of Directors of BRE Properties, Inc. from 2009 to 2014. Mr. Pero holds a B.A. from the University of Notre Dame and a J.D. from New York University School of Law.
The Board of Directors concluded that Mr. Pero should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:
Expertise and experience relating to corporate governance
Management experience
Expertise and experience relating to real estate investment trusts
Expertise and experience in structuring and negotiating debt and equity financings
Expertise and experience relating to the U.S. securities laws
Professional and educational background
Georganne C. Proctor, age 63, has been a director of Redwood since March 2006. Ms. Proctor is the former Chief Financial Officer of TIAA-CREF, and served in that position from June 2006 to July 2010. Additionally, Ms. Proctor served jointly as Chief Financial Officer and Executive Vice President for Enterprise Integration at TIAA-CREF from January 2010 to July 2010. From July 2010 to October 2010, she continued to serve as Executive Vice President for Enterprise Integration at TIAA-CREF. From 2003 to 2005, Ms. Proctor was Executive Vice President of Golden West Financial Corporation, a thrift institution. From 1994 to 1997, Ms. Proctor was Vice President of Bechtel Group, a global engineering firm, and also served as its Senior Vice President and Chief Financial Officer from 1997 to 2002 and as a director from 1999 to 2002. From 1991 to 1994, Ms. Proctor served as finance director of certain divisions of The Walt Disney Company, a diversified worldwide entertainment company. Ms. Proctor currently serves on the Board of Directors of Sculptor Capital Management Group Inc. and Blucora, Inc., serving as Blucora’s Board Chair. Ms. Proctor previously served on the Board of Directors of Kaiser Aluminum Corporation from 2006 to 2009 and SunEdison, Inc. from 2013 to 2017. Ms. Proctor holds a B.S. in Business Management from the University of South Dakota and an M.B.A. from California State University East Bay.
The Board of Directors concluded that Ms. Proctor should be nominated to continue to serve as a director on account of, among other things, the following experience, qualifications, attributes, and skills:
Management experience
Experience as a chief financial officer
Expertise and experience in the banking, insurance, and investment management industries
Professional and educational background









15



Current Director — Retirement Scheduled for June 2020
Mariann Byerwalter, age 59, has been a director of Redwood since 1998. Ms. Byerwalter is Chairman Emeritus of the Board of Directors of SRI International, an independent nonprofit technology research and development organization, and Chairman of JDN Corporate Advisory, LLC, a privately held advisory services firm. Ms. Byerwalter served as interim CEO and President of Stanford Health Care from January 1, 2016 to July 4, 2016. Ms. Byerwalter served as the Chief Financial Officer and Vice President for Business Affairs of Stanford University from 1996 to 2001. She was a partner and co-founder of America First Financial Corporation from 1987 to 1996, and she served as Chief Operating Officer, Chief Financial Officer, and a director of America First Eureka Holdings, a publicly traded institution and the holding company for Eureka Bank, from 1993 to 1996. She also serves on the Board of Directors of Pacific Life Corp., Franklin Resources, Inc., the Lucile Packard Children’s Hospital, and the Stanford Hospital and Clinics Board of Directors (Chair, 2006-2013). In April 2012, she completed her third term on the Board of Trustees of Stanford University. Ms. Byerwalter holds a B.A. from Stanford University and an M.B.A. from Harvard Business School.
On April 9, 2020, Ms. Byerwalter announced that she is retiring from the Board of Directors, effective as of the 2020 Annual Meeting of Stockholders, and will not stand for reelection at the 2020 Annual Meeting. Ms. Byerwalter's retirement follows more than 20 years of service as a member of the Board of Directors.
The Board of Directors concluded that Ms. Byerwalter's long-time service as a director was supported by, among other things, the following experience, qualifications, attributes, and skills:
Leadership attributes and management and entrepreneurial experience
Experience as a chief financial officer
Expertise and experience in the banking and insurance industries
Expertise and experience relating to corporate and institutional governance
Professional and educational background




16



MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

Our Board of Directors currently consists of 9 directors. On April 9, 2020, Mariann Byerwalter announced that she is retiring from the Board of Directors, effective as of the 2020 Annual Meeting of Stockholders. Effective upon Ms. Byerwalter's retirement, our Board of Directors is expected to reduce the size of the Board from nine to eight directors. 
Our Board of Directors has established three standing committees of the Board: the Audit Committee, the Compensation Committee, and the Governance and Nominating Committee. The membership of each committee and the function of each committee are described below. Each of the committees has adopted a charter and the charters of all committees are available on our website and in print at the written request of any stockholder addressed to Redwood’s Secretary at our principal executive office.
Our Board of Directors held a total of 10 meetings during 2019. The non-employee directors of Redwood met in executive session at five meetings during 2019. Mr. Baum presided at executive sessions of the non-employee directors, as well as at executive sessions of the independent directors. No director attended fewer than 75% of the meetings of the Board of Directors and the committees on which he or she served and all of our directors attended last year’s annual meeting of stockholders in person.

Audit Committee

We have a separately-designated Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee provides oversight regarding accounting, auditing, risk management, and financial reporting practices of Redwood. The Audit Committee consists solely of non-employee directors, all of whom our Board of Directors has determined are independent within the meaning of the listing standards of the NYSE and the rules of the SEC. Our Board of Directors has determined that all members of the Audit Committee are “financially literate” within the meaning of the applicable regulations and standards and has designated Ms. Proctor as an “audit committee financial expert” within the meaning of the applicable regulations and standards. The Audit Committee met seven times in 2019 in order to carry out its responsibilities, as discussed below under “Audit Committee Matters — Audit Committee Report.”

Compensation Committee

The Compensation Committee reviews and approves Redwood’s compensation philosophy, reviews the competitiveness of Redwood’s compensation practices, as well as risks that may arise from those practices, determines and approves the annual base salaries and incentive compensation paid to our executive officers, approves the terms and conditions of proposed incentive plans applicable to our executive officers and other employees, approves and oversees the administration of Redwood’s employee benefit plans, and reviews and approves hiring and severance arrangements for our executive officers. The Compensation Committee consists solely of non-employee directors, each of whom our Board of Directors has determined is independent within the meaning of the listing standards of the NYSE, are “non-employee directors” within the meaning of the rules of the SEC, and are “outside directors” within the meaning of the rules of the Internal Revenue Service (the IRS). The Compensation Committee met eight times in 2019 in order to carry out its responsibilities, as discussed below under “Executive Compensation — Compensation Discussion and Analysis.”

Governance and Nominating Committee

The Governance and Nominating Committee reviews and considers corporate governance guidelines and principles, evaluates potential director candidates and recommends qualified candidates to the full Board, reviews the management succession plan and evaluates executives in connection with succession planning, and oversees the evaluation of the Board of Directors. The Governance and Nominating Committee consists solely of non-employee directors, each of whom our Board of Directors has determined is independent within the meaning of the listing standards of the NYSE. The Governance and Nominating Committee met five times in 2019 in order to carry out its responsibilities.

17




Committee Members

The current members of each of the three standing committees are listed below, with the Chair appearing first.
Audit
 
Compensation
 
Governance and Nominating
Greg H. Kubicek
 
Georganne C. Proctor
 
Jeffrey T. Pero
Mariann Byerwalter
 
Richard D. Baum
 
Richard D. Baum
Debora D. Horvath
 
Debora D. Horvath
 
Mariann Byerwalter
Georganne C. Proctor
 
Jeffrey T. Pero
 
Greg H. Kubicek

DIRECTOR COMPENSATION

Information on our non-employee director cash compensation paid (or to be paid) during the annual periods commencing in May 2018, May 2019, and May 2020, is set forth in the tables below. Director cash compensation is paid quarterly, in arrears.
 
 
 
 
 
 
 
 
Director Cash Compensation - Prior to May 2020
 
 
 
 
 
 
 
 
Annual Period Commencing:
 
 
 
 
May 2018
 
May 2019
 
 
Annual Retainer *
 
$
85,000

 
$
85,000

 
 
Committee Meeting Fee (in-person attendance)
 
$
2,000

 
$
2,000

 
 
Committee Meeting Fee (telephonic attendance)
 
$
1,000

 
$
1,000

 
 
————
 
 
* The Chairs of the Audit Committee, the Compensation Committee, and the Governance and Nominating Committee each receive an additional annual cash retainer of $20,000, and the additional annual cash retainer payable to the Chairman of the Board of the Directors is $75,000.
 
 
Commencing in May 2020, non-employee directors that are members of Board Committees will receive a retainer for their service on each Committee, and will no longer receive committee meeting attendance fees. In cases where a non-employee director is formally invited to participate in a committee meeting of which he or she is not a member of, he or she will be paid the committee meeting attendance fee for either in-person or telephonic attendance as outlined below.
 
 
 
 
 
 
Director Cash Compensation - Beginning May 2020
 
 
 
 
 
 
Annual Period Commencing:
 
 
 
 
May 2020
 
 
Annual Retainer *
 
$
85,000

 
 
Retainer for Service as a Committee Member (per Committee)**
 
$
12,500

 
 
————
 
 
* The Chairs of the Audit Committee, the Compensation Committee, and the Governance and Nominating Committee will each receive an additional annual cash retainer of $20,000, and the additional annual cash retainer payable to the Chairman of the Board of the Directors will be $75,000.
 
 
**For the annual period commencing May 2020, non-employee directors who are members of Board Committees will receive a retainer for their service on each Committee and will no longer receive committee meeting attendance fees. In cases where a non-employee director is formally invited to participate in a committee meeting of which he or she is not a member, he or she will be paid $2,000 per meeting for in-person attendance and $1,000 per meeting for telephonic attendance.
 
 
 
 
 
 

18



    
After submission of appropriate documentation on a timely basis, non-employee directors are also reimbursed for reasonable out-of-pocket expenses incurred in attending Board and committee meetings, as well as for their and, in some cases, their guests’ attendance at other Redwood-related meetings or events. Non-employee directors may also be reimbursed for out-of-pocket expenses incurred in attending conferences or educational seminars that relate to their Board service and are approved by the Chair of the Governance and Nominating Committee.

Non-employee directors are also granted deferred stock units (or comparable equity-based awards) each year at the time of the annual meeting of stockholders. The number of deferred stock units granted is determined by dividing the dollar value of the grant by the closing price of Redwood’s common stock on the NYSE on the day of grant (and rounding to the nearest whole share amount). In May 2019, non-employee directors received an annual DSU award valued at $110,000. Non-employee directors may also be granted equity-based awards upon their initial election to the Board. These initial and annual DSU awards are fully vested upon grant, and they are generally subject to a mandatory three-year holding period. Dividend equivalent rights on DSUs are generally paid in cash to directors on each dividend distribution date. DSUs may be credited under our Executive Deferred Compensation Plan.

Each director may elect to defer receipt of cash compensation or dividend equivalent rights through Redwood's Executive Deferred Compensation Plan. Cash balances in the Executive Deferred Compensation Plan are unsecured liabilities of Redwood and are utilized by Redwood as available capital to fund investments and operations. Based on each director’s election, deferred compensation can either be deferred into a cash account and earn a rate of return that is equivalent to 120% of the applicable long-term federal rate published by the IRS compounded monthly or be deferred into deferred stock units which will, among other things, entitle them to receive dividend equivalent rights related to those units.

At an April 16, 2020 meeting of the Board of Directors, the Board approved certain changes to non-employee director compensation for the May 2020 to May 2021 annual period. In connection with these changes, in 2019 the Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., Inc. (FW Cook) conducted an independent review of Redwood's non-employee director compensation program at the request of the Compensation Committee. The review conducted by FW Cook included benchmarking against non-employee director compensation at the companies that comprise Redwood's executive compensation benchmarking peer group. The changes for the program commencing in May 2020 are intended to keep Redwood's total average annual compensation for non-employee directors near the middle of the compensation benchmarking peer group. Further details regarding the executive compensation benchmarking peer group and benchmarking practices are provided on pages 44 to 47 of this Proxy Statement under the heading "Executive Compensation - Compensation Benchmarking for 2019". Set forth below is a list of the changes approved, in each case, commencing in May 2020:
 
Committee meeting attendance fees for Committee members were replaced with a $12,500 retainer for service on each Committee.
Committee meeting attendance fees for a non-employee director formally invited to participate in a committee meeting of which he or she is not a member continued to be $2,000 (in person attendance) and $1,000 (telephonic attendance).

Update Regarding 2020 Director Compensation in Response to Impacts of COVID-19 Pandemic
As part of its response to the impact of the COVID-19 pandemic on Redwood and the market price of Redwood’s common stock, the Board of Directors determined on April 24, 2020 to reduce directors’ annual compensation for the upcoming year. In particular, the Board of Directors is reducing the value of the above-described annual grant of DSUs that non-employee directors are scheduled to receive in 2020 by 30%, to $77,000. As a result, on the 2020 Annual Meeting date, non-employee directors who are re-elected will receive an annual grant of vested DSUs determined by dividing $77,000 by the closing price of Redwood’s common stock on the meeting date.



19



Non-Employee Director Compensation — 2019

The following table provides information on non-employee director compensation for the 2019 calendar year. Director compensation is set by the Board and is subject to change. Directors who are employed by Redwood do not receive any compensation for their Board activities.

Name
 
Fees Earned or Paid in Cash
($)(1)
 
Stock Awards
($)(2)(3)
 
All Other
Compensation
($)
 
Total
($)
Richard D. Baum
 
$
180,000

 
$
109,988

 
 
$
289,988

Mariann Byerwalter
 
$
102,000

 
$
109,988

 
 
$
211,988

Douglas B. Hansen
 
$
95,000

 
$
109,988

 
 
$
204,988

Debora D. Horvath
 
$
106,000

 
$
109,988

 
 
$
215,988

Greg H. Kubicek
 
$
124,000

 
$
109,988

 
 
$
233,988

Fred J. Matera (4)
 
$
78,833

 
$
130,531

 
 
$
209,364

Jeffrey T. Pero
 
$
125,000

 
$
109,988

 
 
$
234,988

Georganne C. Proctor
 
$
130,000

 
$
109,988

 
 
$
239,988

(1)
Fees earned are based on the non-employee director compensation policy in place for 2019: (i) annual cash retainer of $85,000 for 2019; (ii) additional annual retainer for the Chairman of the Board of $75,000 for 2019; (iii) additional annual retainer for Audit Committee Chair, Compensation Committee Chair, and Governance and Nominating Committee Chair of $20,000; (iv) committee meeting fee (in person attendance) of $2,000 per meeting; and (v) committee meeting fee (telephonic attendance) of $1,000 per meeting.
(2)
Stock awards consisted of an annual grant of vested deferred stock units. The value of deferred stock units awarded was determined in accordance with FASB Accounting Standards Codification Topic 718. The value of dividend equivalent rights associated with deferred stock units was taken into account in establishing the value of these deferred stock units and previously granted deferred stock units. Therefore, dividend equivalent rights payments made during 2019 to non-employee directors are not considered compensation or other amounts reported in the table above. Information regarding the assumptions used to value our non-employee directors' deferred stock units is provided in Note 18 to our consolidated financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 2, 2020.
(3)
As of December 31, 2019, the aggregate number of stock awards outstanding for each non-employee director was as follows: Richard D. Baum had 18,596 vested DSUs; Douglas B. Hansen had 18,596 vested DSUs; Mariann Byerwalter had 18,596 vested DSUs; Debora D. Horvath had 18,596 vested DSUs; Greg H. Kubicek had 192,988 vested DSUs; Fred J. Matera had 8,142 vested DSUs; Jeffrey T. Pero had 35,372 vested DSUs; and Georganne C. Proctor had 102,823 vested DSUs.
(4)
Mr. Matera joined Redwood's Board on March 1, 2019 and, at his appointment, received a prorated grant of deferred stock units in addition to the annual non-employee director grant of deferred stock units in May 2019.

20



The following table provides information on stock unit distributions in common stock to non-employee directors from our Executive Deferred Compensation Plan in 2019. Stock units distributed represent compensation previously awarded in prior years and were reported as director or executive compensation in those prior years.
Name
 
Stock Units
Distributed
(#)(1)
 
Aggregate Value
of Stock Units
Distributed
($)(2)
Richard D. Baum
 
6,310

 
$
102,033

Douglas B. Hansen
 
6,310

 
$
102,033

Mariann Byerwalter
 
6,310

 
$
102,034

Debora Horvath
 
7,310

 
$
118,393

Jeffrey T. Pero
 
6,310

 
$
102,034

(1)Deferred stock units distributed in 2019 originally were awarded in 2016.
(2)
The aggregate value of stock units distributed is calculated by multiplying the number of stock units distributed by the fair market value of Redwood common stock on the date of distribution.




21



INFORMATION ABOUT OUR EXECUTIVE OFFICERS

Executive officers of Redwood as of April 15, 2020 are listed in the table below. For purposes of this Proxy Statement, each of Mr. Abate, Mr. Robinson, Mr. Stone, Mr. Cochrane, and Mr. Kanouse (who served as an executive officer in 2019) were Named Executive Officers (NEOs) in 2019.
Name
 
Position with Redwood as of April 15, 2020
 
Age
Christopher J. Abate
 
Chief Executive Officer
 
40
Dashiell I. Robinson
 
President
 
40
Andrew P. Stone
 
Executive Vice President, General Counsel & Secretary
 
49
Collin L. Cochrane
 
Chief Financial Officer
 
43
Sasha G. Macomber
 
Chief Human Resource Officer
 
51
Biographical information regarding these executive officers and Mr. Kanouse (who served as an executive officer in 2019) is set forth below.

Christopher J. Abate, age 40, serves as Chief Executive Officer of Redwood Trust, Inc. and as a director. Mr. Abate has been employed with Redwood since April 2006, previously serving as Redwood’s President from July 2016 to May 2018, Chief Financial Officer from March 2012 to August 2017, and Controller from January 2009 to March 2013. Before joining Redwood, Mr. Abate was employed by PricewaterhouseCoopers LLP. He holds a B.A. in accounting and finance from Western Michigan University, and an M.B.A. from the University of California at Berkeley and Columbia University.

Dashiell I. Robinson, age 40, serves as President of Redwood Trust, Inc. He joined the company as Executive Vice President in September 2017. Prior to joining Redwood, Mr. Robinson was employed at Wells Fargo Securities, serving as the Head of Mortgage Finance within the Asset-Backed Finance Group. In that role, Mr. Robinson led a team of banking professionals responsible for financing and distributing an array of residential mortgage products, and serving a broad suite of the firm's operating and investing clients. Prior to his employment at Wells Fargo, Mr. Robinson was employed within the Structured Credit Products Group at Wachovia Capital Markets from 2001 to 2008, serving in banking, structuring and risk mitigation roles. Mr. Robinson holds a B.A. in English from Georgetown University.

Andrew P. Stone, age 49, serves as Executive Vice President, General Counsel, and Secretary of Redwood Trust, Inc. Mr. Stone has been employed by Redwood since December 2008. Prior to joining Redwood, he served as Deputy General Counsel of Thomas Weisel Partners Group, Inc. from 2006 to 2008 and between 1996 and 2006 practiced corporate and securities law at Sullivan & Cromwell LLP and Brobeck, Phleger & Harrison LLP. Mr. Stone holds a B.A. in mathematics and history from Kenyon College and a J.D. from New York University School of Law.

Collin L. Cochrane, age 43, serves as Chief Financial Officer of Redwood Trust, Inc. Mr. Cochrane has also served as Redwood's Controller and Managing Director since March of 2013. Prior to joining Redwood in 2013, Mr. Cochrane served as Chief Accounting Officer and Controller for iStar Financial Inc., where he was employed from 2001 to March 2013. Prior to joining iStar Financial, Mr. Cochrane was employed as an auditor by Ernst & Young LLP from 1999 to 2001. Mr. Cochrane is a certified public accountant and holds a B.S. in Accounting from the Leventhal School of Accounting at the University of Southern California.

Sasha G. Macomber, age 51, has serves as Chief Human Resource Officer of Redwood Trust, Inc.. Prior to joining Redwood, Ms. Macomber spent 11 years with Peet’s Coffee in the San Francisco Bay Area, leading various aspects of human resources including talent acquisition, talent management, HR business partnerships, employee engagement, and leadership communications. Ms. Macomber has also held HR leadership roles within consumer goods and technology companies, including The North Face, Room & Board, and QRS Corporation. Ms. Macomber has a B.A. in English Literature from Mills College and a M.S. in Organizational Development from the University of San Francisco.

22




Garnet W. Kanouse, age 47, serves as Managing Director and Head of the Residential business at Redwood Trust, Inc. He has been with Redwood since 2005 and has held a variety of capital markets, business development and portfolio management roles at the company. Prior to joining Redwood, Mr. Kanouse spent 10 years in Chicago at Bank One and predecessor entities in various fixed income capacities, primarily as a member of the team responsible for a portfolio of mezzanine asset-backed and first-loss residential and commercial mortgage-backed securities. Mr. Kanouse holds a B.S. in Accounting from the University of Colorado and an M.B.A. in Finance from the University of Chicago.






23



SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information, as of April 15, 2020, on the beneficial ownership of our common stock by our current directors and executive officers, our NEOs and by all of our current directors and executive officers as a group. As indicated in the notes, the table includes common stock equivalents held by these individuals through Redwood-sponsored benefits programs. Except as otherwise indicated and for such power that may be shared with a spouse, each person has sole investment and voting power with respect to the shares shown to be beneficially owned. Beneficial ownership is determined in accordance with the rules of the SEC.

Executive Officers
 
Number of Shares
of Common Stock
Beneficially
Owned(1)
 
Percent of
Class(2)
Christopher J. Abate(3)
 
259,042
 
Dashiell I. Robinson(4)
 
78,717
 
Andrew P. Stone(5)
 
130,435
 
Collin L. Cochrane(6)
 
75,506
 
Garnet W. Kanouse(7)
 
113,864
 
Sasha G. Macomber(8)
 
9,246
 
Non-Employee Directors
 
  
 
 
Richard D. Baum(9)
 
60,211
 
Douglas B. Hansen(10)
 
363,476
 
Mariann Byerwalter(11)
 
30,566
 
Debora D. Horvath(12)
 
31,941
 
Greg H. Kubicek(13)
 
307,260
 
Fred J. Matera(14)
 
20,934
 
*
Jeffrey T. Pero(15)
 
104,303
 
Georganne C. Proctor(16)
 
111,468
 
All directors and executive officers as a group (14 persons)(17)
 
1,696,969
 
1.47%
 
* Less than 1%.
(1)
Represents shares of common stock outstanding and common stock underlying performance stock units and deferred stock units that have vested or will vest within 60 days of April 15, 2020.
(2)
Based on 114,837,533 shares of our common stock outstanding as of April 15, 2020.
(3)
Includes 143,835 shares of common stock and 115,207 deferred stock units that have vested or will vest within 60 days of April 15, 2020.
(4)
Includes 28,996 shares of common stock and 49,721 deferred stock units that have vested or will vest within 60 days of April 15, 2020.
(5)
Includes 84,176 shares of common stock and 46,259 deferred stock units that have vested or will vest within 60 days of April 15, 2020.
(6)
Includes 30,052 shares of common stock, and 45,454 deferred stock units that have vested or will vest within 60 days of April 15, 2020.
(7)
For purposes of this Proxy Statement, Mr. Kanouse (who served as an executive officer in 2019) was a Named Executive Officer in 2019. Includes 59,010 shares of common stock, and 54,854 deferred stock units that have vested or will vest within 60 days of April 15, 2020.
(8)
Includes 139 shares of common stock, and 9,107 deferred stock units that have vested or will vest within 60 days of April 15, 2020.

24



(9)
Includes 41,615 shares of common stock, and 18,596 deferred stock units.
(10)
Includes 344,880 shares of common stock, and 18,596 deferred stock units.
(11)
Includes 11,970 shares of common stock, and 18,596 deferred stock units.
(12)
Includes 13,345 shares of common stock, and 18,596 deferred stock units.
(13)
Includes 106,456 shares of common stock held in direct ownership, living trusts and through an unaffiliated pension plan, 1,912 shares held of record by Mr. Kubicek’s spouse, and 200,804 vested deferred stock units.
(14)
Includes 12,792 shares of common stock, and 8,142 deferred stock units.
(15)
Includes 68,931 shares of common stock and 35,372 vested deferred stock units.
(16)
Includes 8,645 shares held in the Proctor Trust and 102,823 vested deferred stock units.
(17)
Includes 954,841 shares of common stock, and 742,128 vested deferred stock units.



25



SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                
The following table sets forth information as of the dates noted below, with respect to shares of our common stock owned by each person or entity known by us to be the beneficial owner of approximately 5% or more of our common stock.
Name of Beneficial Owner
 
Number of Shares
of Common Stock
Beneficially Owned
 
Percent of
Class(1)
BlackRock, Inc.(2)
 
19,793,820
 
17.2
%
FMR LLC (3)
 
13,248,979
 
11.5
%
The Vanguard Group(4)
 
11,554,373
 
10.1
%
Wellington Management Group LLP (5)
 
10,791,531
 
9.4
%
Capital World Investors (6)
 
5,883,159
 
5.1
%
 
(1)
Based on 114,837,533 shares of our common stock outstanding as April 15, 2020.
(2)
Address: 55 East 52nd Street, New York, New York 10055. The information in the above table and this footnote concerning the shares of common stock beneficially owned by BlackRock, Inc. (BlackRock) is based on the amended Schedule 13G filed by BlackRock with the SEC on February 4, 2020, which indicates that BlackRock and certain other subsidiary entities make aggregate reports on Schedule 13G and that such entities, in the aggregate, have sole dispositive power with respect to 19,793,820 shares and sole voting power with respect to 19,489,772 shares.
(3)
Address: 245 Summer Street, Boston, Massachusetts 02210. The information in the above table and this footnote concerning the shares of common stock beneficially owned by FMR LLC (FMR) is based on the amended Schedule 13G filed by FMR with the SEC on February 7, 2020, which indicates that FMR and certain other subsidiary entities make aggregate reports on Schedule 13G and that the such entities, in the aggregate, have sole dispositive power with respect to 13,248,979 shares and sole voting power with respect to 1,976,370 shares.
(4)
Address: 100 Vanguard Boulevard, Malvern, Pennsylvania 19355. The information in the above table and this footnote concerning the shares of common stock beneficially owned by The Vanguard Group (Vanguard) is based on the amended Schedule 13G filed by Vanguard with the SEC on February 12, 2020, which indicates that Vanguard and certain other subsidiary entities make aggregate reports on Schedule 13G and that such entities, in the aggregate, have sole dispositive power with respect to 11,439,313 shares, shared dispositive power with respect to 115,060 shares, sole voting power with respect to 126,645 shares, and shared voting power with respect to 16,900 shares.
(5)
Address: 280 Congress Street, Boston, Massachusetts 02210. The information in the above table and this footnote concerning the shares of common stock beneficially owned by Wellington Management Group LLP (Wellington) is based on the amended Schedule 13G filed by Wellington with the SEC on January 27, 2020, which indicates that Wellington and certain other subsidiary entities make aggregate reports on Schedule 13G and that such entities, in the aggregate, have shared dispositive power with respect to 10,791,531 shares and shared voting power with respect to 9,660,184 shares.
(6)
Address: 333 South Hope Street, Los Angeles, California 90071. The information in the above table and this footnote concerning the shares of common stock beneficially owned by Capital World Investors (Capital World), a division of Capital Research and Management Company (CRMC), is based on the amended Schedule 13G filed by Capital World with the SEC on February 14, 2020, which indicates that Capital World has sole voting and dispositive power with respect to 5,883,159 shares.


26




EXECUTIVE COMPENSATION

Table of Contents

Executive Summary of Compensation Discussion and Analysis

Compensation Discussion and Analysis (CD&A)
37

Section I - Overview
37

Named Executive Officers
37

Compensation Committee
37

Redwood's Business Model and Internal Management Structure
38

Overall Compensation Philosophy and Objectives
38

Outreach to Stockholders
39

"Say-on-Pay" Support from Stockholders
41

Section II - Executive Compensation in 2019
42

Redwood's 2019 and Long-Term Performance
42

Elements of Compensation in 2019
42

Process for Compensation Determinations for 2019
44

Compensation Benchmarking for 2019
44

2019 Base Salaries
47

2019 Performance-Based Annual Bonus Compensation
48

Performance-Based Annual Bonuses Earned for 2019
52

2019 Long-Term Equity-Based Incentive Awards
55

Vesting and Mandatory Holding Periods for 2019 Long-Term Equity-Based Incentive Awards
58

Section III - Other Compensation, Plans and Benefits
59

Deferred Compensation
59

Employee Stock Purchase Plan
59

401(k) Plan and Other Matching Contributions
60

Other Compensation and Benefits
60

Severance and Change of Control Arrangements
60

Section IV - Compensation-Related Policies and Tax Considerations
62

Mandatory Executive Stock Ownership Requirements
62

Prohibition on Use of Margin, Pledging, and Hedging in Respect of Redwood Shares
62

Clawback Policy
63

Tax Considerations
63

Accounting Standards
63

Section V - Conclusion
64

Certain Compensation Determinations Relating to 2020
64

Compensation Committee Report
65

Executive Compensation Tables
66

Compensation Risks
78

CEO Pay Ratio
79

 
 

27




COMPENSATION DISCUSSION & ANALYSIS - EXECUTIVE SUMMARY

Ø
Introductory Remarks Related to the Impact of the COVID-19 Pandemic
As described in the cover letter to this Proxy Statement, 2019 was a year of significant accomplishments for Redwood and that momentum continued into the first two months of 2020. The Compensation Discussion and Analysis that follows is primarily focused on describing the Compensation Committee’s 2019 year-end executive compensation determinations, which were made in the context of Redwood’s performance through the end of 2019. In particular, the Committee’s regular annual processes for reviewing, structuring, and determining 2019 compensation were largely completed in December 2019, with the final step in the process being on February 26, 2020, when, in connection with the Board of Directors’ review and approval of Redwood’s 2019 audited financial statements, final 2019 annual bonuses were calculated and then paid on March 2, 2020, in accordance with the Committee’s pre-determined methodology and schedule.
Shortly thereafter, during the second week of March 2020, the market price of Redwood’s common stock declined significantly, reflecting broad and rapidly changing sentiment about the impact of the COVID-19 pandemic on financial markets, economic conditions, and, more specifically, Redwood and other firms whose business, operations and investing activities focus on housing finance. As these pandemic-related impacts continue to unfold, the Committee is focused on, among other things, two key matters relating to executive compensation at Redwood:
Redwood’s pay-for-performance compensation philosophy and program has historically delivered a significant portion of executive compensation in the form of long-term equity-based awards with three- or four-year vesting and holding periods. In fact, for Redwood’s CEO, equity-based compensation has generally accounted for the majority of his annual target compensation. As a result, the value of not only the most recent (December 2019) annual equity award to executives, but of multiple years of annual equity-based compensation has significantly declined - in alignment with the pronounced and negative total return experience of Redwood’s stockholders since mid-March 2020.
As an example, for Redwood’s CEO, the aggregate grant date fair value of equity awards granted over the past three years, since year-end 2017, was approximately $8.25 million, all of which awards currently remain either unvested or vested and subject to a continuing mandatory holding requirement. Based on the closing price of Redwood common stock on April 15, 2020, and assuming no performance-based vesting for his unvested performance stock units, the aggregate value of the CEO’s past three years’ of equity-based compensation had declined to approximately $885,000, or by 90%.
As Redwood continues to navigate through the significant disruptions caused by the COVID-19 pandemic, the Committee’s upcoming annual review of the executive compensation program will, of course, include a focused assessment of appropriate changes to respond to the impacts of the pandemic on Redwood and the markets and business environment it operates within. In the interim, Redwood’s CEO has voluntarily waived continued receipt of the 2020 base salary increase that was provided to him at the end of 2019, effective May 1, 2020, and continuing through the end of the year.
As a Committee, our philosophy will continue to be that Redwood maintain a performance-based executive compensation program that seeks to provide incentives to achieve both short-term and long-term business and stockholder return objectives, while aligning the interests of executives with those of long-term stockholders. We plan to continue to communicate with stockholders about key executive compensation determinations as our work progresses throughout 2020.

Compensation Committee:
Georganne C. Proctor, Chair


28




OVERVIEW

Ø
Redwood has a performance-based executive compensation program where pay delivery appropriately adjusts up or down to reflect short- and long-term performance results
2019 annual bonuses exceeded target levels, reflecting annual financial and operating performance that exceeded the targets and goals established by the Compensation Committee (the Committee) at the beginning of 2019
The return on equity (ROE)-based financial performance target for annual bonuses established each year by the Committee has been increased annually since 2016 - i.e., the target was increased year-over-year in 2017, 2018, and 2019
Realized value from prior years’ equity awards reflected longer-term total stockholder return (TSR) results, with near-target three-year TSR resulting in modestly below-target vesting of performance stock units (PSUs) granted to executives in December 2016

Ø
The philosophy and key elements of Redwood’s executive compensation program have remained largely consistent in recent years
The program balances performance-based annual bonuses with long-term equity-based compensation in the form of performance stock units (PSUs) and deferred stock units (DSUs), as well as a limited amount of fixed compensation delivered as annual salary and standard benefits
In December 2018 the structure of PSUs was updated based on stockholder feedback and the Committee’s determination that vesting should be driven by both:
A book value TSR metric, which measures three-year book value growth and cash dividends paid; and
A relative TSR metric, which adjusts vesting based on three-year TSR relative to other publicly-traded mortgage REITs
This PSU structure provides executives meaningful “line-of-sight” between their long-term strategic and operational decisions and the primary performance metric that drives PSU vesting, and incorporates a relative performance metric to ensure that vesting is correlated with TSR performance compared to other publicly-traded mortgage REITs

Ø
Stockholders have provided consistently strong “Say-on-Pay” voting support and given meaningful feedback to the Committee Chair as part of Redwood’s ongoing outreach efforts
At the 2019 Annual Meeting of Stockholders, more than 90% of votes cast supported the non-binding “Say-on-Pay” resolution to approve executive compensation
During 2019, in advance of Redwood’s Annual Meeting, outreach efforts were made with respect to 27 of Redwood’s top institutional stockholders, which in the aggregate held approximately 70% of then-outstanding shares of Redwood’s common stock
During 2019, the Committee Chair met in person with stockholders which, in the aggregate, held approximately 30% of then-outstanding shares of Redwood’s common stock
A further discussion of outreach to, engagement with, and feedback from our stockholders is set forth within the main body of CD&A under the heading “Outreach to Stockholders”



29




COMPENSATION PHILOSOPHY

Ø
Redwood’s performance-based compensation program is administered by the independent Compensation Committee of the Board of Directors and is designed to:
Incentivize attainment of both short- and long-term business and stockholder return objectives, including:
Achieving stable and attractive returns-on-equity (ROEs) that support payment of attractive levels of sustainable dividends and build book value
Meeting annual strategic, business, operational, governance, and risk-management goals
Align the interests of executives with those of long-term stockholders in achieving strong stockholder returns, in absolute terms and relative to other publicly-traded mortgage REITs
Enable Redwood to hire and retain executives in a competitive marketplace
Market-based compensation benchmarking is used to evaluate compensation relative to peer companies and informs the Committee’s determinations
Avoid incentivizing inappropriate risk taking
The Committee meets at least four times annually and follows a defined process in reviewing and updating the executive compensation program and determining each executive’s compensation every year. As in prior years, during 2019 the Committee directly engaged and used the services of a nationally recognized independent compensation consultant, Frederic W. Cook & Co., Inc.
Executive Compensation - Key Practices & Risk Mitigants
 
What Redwood Does
 
What Redwood Does Not Do
 
 
ü
Directly links annual bonus to financial and operating performance
 
û
No guaranteed annual bonus arrangements; no uncapped annual bonuses
 
 
ü
Provides more than 60% of CEO’s target annual compensation in long-term equity-based incentives
 
û

No significant amount of fixed compensation - base salary and standard benefits are the only fixed elements of compensation
 
 
ü

Uses profitability- and return-based financial metrics, as well as TSR, to support alignment with stockholders
 
û

No revenue- or volume-based financial metrics are used in a manner that could incentivize inappropriate risk taking
 
 
ü

Imposes three- or four-year vesting/holding periods on annual equity grants of DSUs and PSUs
 
û

No above target vesting of PSUs if Redwood’s TSR over the three-year performance measurement period is negative
 
 
ü

Retains authority within Compensation Committee to use discretion to reduce annual bonus amounts
 
û

No “single-trigger” change-in-control severance payments or acceleration of equity award vesting
 
 
ü
Maintains robust stock ownership requirements for executives
 
û
No excise tax gross-ups for any change-in-control related payments
 
 
ü
Maintains a “clawback” policy if fraud or misconduct results in a financial restatement
 
û
No margin, pledging, or hedging transactions permitted with respect to Redwood stock
 



30




REDWOOD’S BUSINESS MODEL AND INTERNAL MANAGEMENT STRUCTURE

The nature of Redwood’s business model and internally-managed REIT structure are key factors the Committee has taken into account in designing Redwood’s executive compensation program and determining appropriate metrics and setting targets and goals for performance-based compensation

Ø
Internally-Managed Mortgage REIT. Redwood is a specialty finance company structured as an internally-managed REIT for tax purposes. Redwood is focused on making credit-sensitive investments in single-family residential and multifamily mortgages and related assets and engaging in mortgage banking activities - e.g., the origination/acquisition and sale (or securitization) of mortgage loans

Ø
REIT Dividend Requirement. Unlike traditional corporations, under the Internal Revenue Code, REITs are required to distribute at least 90% of the income earned under their REIT status as dividends
- as a result:
Redwood is limited in its ability to grow book value and its equity capital base through the reinvestment of retained earnings
A key element of the return to stockholders from investing in Redwood is the level of dividends paid on shares of common stock

Ø
Business Model and Structure are Important Factors in the Compensation Program. Redwood’s business model and structure are important factors the Committee considers in making key determinations regarding executive compensation.
Financial Performance Metrics. In addition to TSR, the Committee believes that ROE, book value TSR, and other profitability-based financial performance measures are highly relevant factors in determining annual bonuses and measuring performance because:    
These financial performance measures should correlate with Redwood’s ability to increase book value and pay attractive levels of sustainable dividends
Management has “line-of-sight” into how its strategic and operational decisions impact these financial performance measures
Over the long-term, strong results under these financial performance measures should correlate with strong TSR results
Leverage and Liquidity Risk. Redwood’s approach to the use of leverage to finance its business and investments, as compared to many of its peers, as well as its approach to managing liquidity risk, are factored in when the Committee sets financial performance targets, as it seeks to incentivize attractive risk-adjusted returns


31




KEY ELEMENTS OF CEO’S 2019 COMPENSATION
As noted above, the Committee annually reviews Redwood’s executive compensation program in consultation with the Committee’s independent compensation consultant. During 2019, the Committee structured the ongoing compensation for Redwood’s CEO, Mr. Abate, to include the following four elements:

Ø
Base Salary and Standard Benefits. Base salary and standard benefits together represent less than 15% of the CEO’s target annual compensation, with the remainder in performance-based and/or equity-based compensation

Ø
Target Annual Bonus. Target annual bonus is structured as follows:
75% based on an ROE-based performance metric    
Performance target for 2019 represented a level of earnings in excess of the regular annual dividend set by the Board and was higher than the target established for 2018
The ROE-based financial performance target for the CEO’s annual bonus has been increased each year since 2016
25% based on individual contribution to the achievement of strategic, business, operational, governance and risk-management goals established in the first quarter of the year    
The Committee retains the authority to use discretion at the end of the year to reduce the CEO’s annual bonus below any formulaic funding level

Ø
Long-Term Equity Awards: PSUs. The structure of PSUs was updated in 2018 to make vesting contingent on two performance metrics: book value TSR and relative TSR, with each measured over a three-year period
Awarded at year-end, PSUs represent 50% of annual long-term equity incentive grant value
Book value TSR measures (over the three-year period) the change in GAAP book value per share, plus cash dividends paid, each a key factor in driving returns to stockholders
Relative TSR measures Redwood’s TSR over the three-year period compared to the component companies of the FTSE Nareit Mortgage REITs Index, a broad-based index of mortgage REITs1/ 
Further detail on the structure of PSUs is provided within the main body of CD&A

Ø
Long-Term Equity Awards: Deferred Stock Units (DSUs). The structure of DSUs provides for full vesting and delivery only after a four-year period
Awarded at year-end, DSUs represent 50% of annual long-term equity incentive grant value
Directly aligns interests of executives and stockholders in enhancing long-term TSR and supports retention



__________________________
1/ See Annex B to this Proxy Statement for a listing of this group of publicly-traded mortgage REITs.


32






Elements of CEO's Target Annual Compensation - 2019
403750552_elementsofcomp2019chrisfina.jpg

Ø
Performance Based Compensation
Two key elements of compensation are earned directly based on performance    
Annual bonus funding is primarily determined based on the achievement of an Adjusted ROE-performance target, as well as performance against pre-defined individual goals
PSUs vest based on three-year book value TSR and three-year relative TSR, measured against the component companies of the FTSE Nareit Mortgage REIT index

Ø
Long-Term Awards / Equity Value at Risk
Long-term equity awards comprise the largest element of target annual compensation and are subject to three- and four-year vesting/holding periods, during which value is at risk and value realization is dependent on the delivery of stockholder value and achievement of pre-defined performance goals


Ø
Limited Fixed Compensation
Base salary and standard benefits of the type generally provided to full-time employees are the only fixed elements of compensation






33




REDWOOD'S 2019 PERFORMANCE

Ø
Redwood’s Performance Peers
In addition to reviewing its stand-alone performance, Redwood regularly compares its financial performance to a group of publicly-traded mortgage REITs whose business models share a common focus on investing in residential mortgages and related assets
This group of 14 publicly-traded mortgage REITs (“mREIT Peers”) is used in the performance comparisons shown below and on subsequent pages of this Executive Summary2/
Ø
 
2019 Financial Performance Relative to mREIT Peers
 
 
 
 
 
 ○
2019 ROE of 10.6% (based on GAAP financial results)
403750552_a2019gaaproea03.jpg
 
Redwood's 2019 ROE was strong on both an absolute basis and relative to mREIT peers
 
 
 
 
 
 
 
 
Redwood's 2019 ROE compares favorably to mREIT peers that have different financial leverage3/ profiles than Redwood
403750552_a2019historialbvtsr3.jpg
____________________________
2/ See Annex B to this Proxy Statement for a listing of this group of publicly-traded mortgage REITs, as well as a breakdown of these mREITs Peers into the two sub-sets of “Agency Peers” and “Hybrid/Credit Peers”.
3/ Financial leverage for purposes of these comparisons is measured by the ratio of recourse indebtedness (e.g., excluding non-recourse asset-backed debt) to tangible equity.

34




CEO’S ANNUAL BONUS TRACKS WITH ANNUAL ROE-BASED PERFORMANCE METRIC

Ø
Consistent Pay-for-Performance Design of Annual Bonus Program
Amounts earned under the annual bonus plan are highly correlated with Redwood’s ROE and non-GAAP Adjusted ROE4/ with strong 2019 Adjusted ROE and goal attainment resulting in the CEO earning a bonus for 2019 that was approximately 172% of his target amount
As illustrated in the graph below, annual bonuses paid to Redwood’s CEO have correlated with Adjusted ROE performance, as well as with ROE determined based on GAAP financial results (graph includes annual bonus amounts paid to prior CEO, Marty Hughes)
A portion of the CEO’s annual bonus is delivered in DSUs, in lieu of cash, when earned in excess of two-times target, as occurred in 2017
CEO’s Performance-Based Annual Bonuses vs. ROE Performance Measures

403750552_annualceobonuschart3172020.jpg
Ø
Non-GAAP Adjusted ROE Performance Metric. Adjusted ROE is the non-GAAP financial performance metric that is the primary determinant of annual bonuses. As illustrated in the graph above, Redwood’s ROE (based on GAAP financial results) and Adjusted ROE are closely correlated
Adjusted ROE reflects GAAP earnings divided by average equity capital, adjusted to exclude certain unrealized mark-to-market gains and losses from equity capital
The adjustment to exclude these unrealized mark-to-market gains and losses enables the calculation of an “apples-to-apples” non-GAAP ratio of earnings to equity capital for purposes of evaluating financial performance - i.e., unrealized gains and losses are disregarded in both the numerator (earnings) and denominator (equity capital)
For purposes of determining the CEO’s performance-based annual bonus for 2019, the Committee excluded the impact on Redwood’s financial performance of certain purchase accounting-related items and out-of-pocket transaction expenses related to acquisitions completed in 2019, as further described within the main body of CD&A and in Annex A to this Proxy Statement.
______________________
4/ Non-GAAP Adjusted ROE is further described on page 48-52 within the main body of CD&A and is reconciled to ROE based on GAAP financial results in Annex A to this Proxy Statement.


35




VALUE REALIZATION FROM PSUs TRACKS LONG-TERM PERFORMANCE
Ø
Vesting of PSUs at year-end 2019 correlated with returns to stockholders over a three-year performance measurement period
PSU vesting for Redwood’s CEO at year-end 2019 was at 92.4% of target, based on absolute TSR performance, as measured over four staggered measurement periods over the three-years following the original grant in December 2016
The graphs below illustrate returns to Redwood stockholders over the 2017-2019 three-year period, as measured by TSR, ROE, and book value TSR, on both an absolute basis and relative to mREIT Peers
403750552_a3chartsusecopy.jpg
Ø
PSU vesting over the past five years has varied, in correlation with three-year TSR performance for the corresponding three-year performance measurement periods5/  
Grant Date:
 
PSU Vesting Date:
 
Cumulative TSR:
 
PSU Vesting (% of target):
Dec. 7, 2012
 
Dec. 6, 2015
 
4.42%
 
17.7% (significantly below target)
Dec. 10, 2013
 
Dec. 9, 2016
 
-1.57%
 
0% (forfeiture)
Dec. 17, 2014
 
Dec. 16, 2017
 
-0.97%
 
0% (forfeiture)
Dec. 16, 2015
 
Dec. 15, 2018
 
53.84%
 
128.4% (above target)
Dec. 14, 2016
 
Dec. 13, 2019
 
   29.93%/13.68%/11.42%/14.05%
 
92.4% (below target)
_____________________________
5/Actual vesting for PSUs granted in 2012-2015 was based on cumulative TSR calculated using an average price for Redwood’s common stock over a designated period at the beginning and end of the performance measurement period. Actual vesting for PSUs granted in 2016 was based on cumulative TSR performance as measured over four staggered measurement periods during the three-years following the original grant in December 2016.

36



Compensation Discussion and Analysis (CD&A)

In accordance with SEC regulations, this CD&A is focused on the compensation of Redwood’s Named Executive Officers (NEOs) for 2019, although it also provides some general discussion and analysis of aspects of Redwood’s compensation programs, plans, and practices that apply to all of Redwood’s officers and employees.

Section I - Introduction
 
 
 
 
Ø
Named Executive Officers
 
 
 
 
Ø
Compensation Committee
 
 
 
 
Ø
Redwood's Business Model and Internal Management Structure
 
 
 
 
Ø
Overall Compensation Philosophy and Objectives
 
 
 
 
Ø
Outreach to Stockholders
 
 
 
 
Ø
"Say-on-Pay" Support from Stockholders

Named Executive Officers
Redwood had five NEOs for 2019.
Named Executive Officers
Christopher J. Abate, Chief Executive Officer
Dashiell I. Robinson, President
Andrew P. Stone, Executive Vice President, General Counsel, and Secretary
Collin L. Cochrane, Chief Financial Officer
Garnet W. Kanouse, Managing Director - Head of Residential

Compensation Committee
The Committee is committed to providing disclosure within this CD&A that gives insight into the process by which it arrives at determinations relating to executive compensation and the underlying rationale for those determinations. Among other things, this CD&A describes:
The Committee’s process for reviewing and determining the elements of the compensation of the Chief Executive Officer (CEO) and of the other NEOs.
The rationale for the different elements of the NEOs’ compensation and Redwood’s compensation philosophy, objectives, and methodology for competitive benchmarking.
The metrics and goals used for performance-based compensation and factors taken into account in the Committee’s determination of whether those measures and goals were satisfied.
The severance and change of control payments that NEOs may become entitled to receive under certain circumstances.
The role of the Committee’s independent compensation consultant.



37



The Committee meets at least four times annually and follows a defined process in reviewing Redwood’s compensation philosophy and its executive compensation plans and programs. After taking into account various factors and analyses, including those described in this CD&A, input from its independent compensation consultant, feedback from stockholders obtained during regular ongoing stockholder outreach efforts, and the outcome of recent stockholder advisory votes on executive compensation (commonly referred to as “Say-on-Pay” votes), the Committee makes compensation determinations it believes are appropriate in light of its executive compensation objectives.

Redwood’s Business Model and Internal Management Structure
Redwood is a specialty finance company structured as an internally-managed real estate investment trust (REIT). Redwood's business is focused on making credit-sensitive investments in single family residential and multifamily mortgage loans and other related assets and engaging in mortgage banking activities. Redwood operates its business in four segments: Residential Lending, Business Purpose Lending, Multifamily Investments, and Third-Party Residential Investments.
Redwood’s primary sources of income are net interest income from its investments and non-interest income from its mortgage banking activities. Net interest income consists of the interest income earned on investments less the interest expense incurred on borrowed funds and other liabilities. Income from mortgage banking activities is generated through the origination and acquisition of loans, and their subsequent sale, securitization, or transfer to Redwood’s investment portfolios.
Redwood was established in 1994 and is structured as a REIT for tax purposes. Under the Internal Revenue Code, REITs are required to distribute as dividends at least 90% of the income earned under their REIT status. As a result, like other REITs, Redwood is limited in its ability to grow book value and its equity capital base through the reinvestment of retained earnings and a key element of returns to stockholders is the level of dividends paid on shares of Redwood's common stock.
The nature of Redwood’s business model and internally-managed REIT structure are key factors the Committee has taken into account in designing Redwood’s executive compensation program and determining appropriate metrics and setting targets and goals used for performance-based compensation. For example:

Return-on-equity, book value total stockholder return, and other profitability-based measures of financial performance have been considered highly relevant factors in determining annual bonuses and measuring performance because: (i) these financial performance measures should correlate with Redwood’s ability to increase book value and pay attractive levels of sustainable dividends; (ii) management has “line-of-sight” into how its strategic and operational decisions impact these financial performance measures; and (iii) over the long-term, strong results under these financial performance measures should correlate with strong total stockholder returns.
Redwood’s approach to the use of leverage to finance its business and investments, as compared to many of its peers, as well as its approach to managing liquidity risk, are factored in when the Committee sets financial performance targets, as the Committee seeks to incentivize attractive risk-adjusted returns.
Overall Compensation Philosophy and Objectives
Redwood maintains a performance-based compensation philosophy and program for its executive officers that seeks to provide incentives to achieve both short-term and long-term business and stockholder return objectives, align the interests of executive officers with those of long-term stockholders, and ensure that it can hire and retain talented individuals in a competitive marketplace. The Committee is responsible for evaluating Redwood's executive compensation programs, plans, and practices to ensure that they provide proper incentives and appropriately support Redwood's business model and performance objectives without creating risks that are likely to have a material adverse effect on Redwood.


38



Redwood's executive compensation objectives are as follows:
Attract and retain highly qualified and productive executives
Motivate executives to enhance the overall performance and profitability of Redwood, both on a short-term and a long-term basis, including by:
Achieving stable and attractive returns-on-equity that support payment of attractive levels of sustainable dividends and build book value
Meeting annual strategic, business, operational, governance, and risk-management goals
Foster long-term alignment of the interests of executives and stockholders through ownership of Redwood common stock by executives and by rewarding stockholder value creation
Ensure that compensation opportunities are competitive
Avoid incentivizing inappropriate risk taking
Consistent with prior years, during 2019, the Committee, with input and guidance from its independent compensation consultant, Frederic W. Cook & Co., Inc. (FW Cook), engaged in a review of the structure of Redwood’s executive compensation program. This included a review of the elements of executive compensation, the mix of annual and long-term compensation, the compensation benchmarking peer group, the overall competitiveness of target levels of cash and equity-based compensation, and the mechanisms through which Redwood's pay-for-performance philosophy is implemented.

Outreach to Stockholders
Outreach to stockholders regarding executive compensation during 2019 and over the past several years has provided Redwood with the opportunity to discuss and receive stockholder feedback regarding Redwood’s philosophy and views on executive compensation and specific compensation practices. In particular:
Independent Committee Chair Active in Ongoing Outreach to Stockholders. The Chair of the Committee generally leads Redwood’s stockholder outreach and engagement efforts, which, in 2019, were primarily in-person meetings between institutional stockholders and the Committee Chair (together with members of Redwood’s management), supplemented by telephone conferences.
2019 Outreach Efforts. During 2019, in advance of Redwood’s 2019 annual stockholders’ meeting, Redwood made outreach efforts to 27 of Redwood’s top 30 institutional stockholders, which in the aggregate held approximately 70% of then-outstanding shares of Redwood’s common stock.
2019 Engagement Response. These outreach efforts resulted in an engagement response from approximately 40% of the ownership of Redwood’s then-outstanding common stock, including in-person meetings in 2019 between the Chair of the Committee and five of Redwood’s significant stockholders, which in the aggregate held approximately 30% of then-outstanding shares of Redwood’s common stock. (Certain stockholders responded to these outreach efforts by indicating that prior years’ engagement with Redwood continued to provide the information needed to support their 2019 proxy voting process.)    

39



2019 Feedback From Stockholders. Feedback provided to the Chair of the Committee during stockholder engagement in 2019 was generally positive about Redwood’s executive compensation program. Examples of executive compensation topics discussed during stockholder engagement (and topics where feedback was provided by stockholders) included:
The different risk mitigants that are incorporated into Redwood’s executive compensation program and how the Committee seeks to balance Redwood’s pay-for-performance philosophy with the risk appetite and tolerances established by the Board of Directors.
The process and criteria used by the Committee to select a compensation benchmarking peer group and a separate group of publicly-traded mortgage REITs for financial performance comparisons.
How the executive compensation program at Redwood should evolve as Redwood’s business model and operations change, over time, in order to ensure the program continues to provide appropriately tailored incentives to drive desired performance outcomes, including the operating and financial performance metrics that should drive performance-based compensation determinations.
The methodology stockholders follow as they analyze Redwood’s executive compensation and the data and information stockholders rely on in carrying out this analysis, as well as how their analysis translates into a Say-on-Pay vote at Redwood’s annual meeting.
Consistent Outreach and Feedback Over Multiple Years. Outreach to stockholders regarding executive compensation has been a consistent practice at Redwood. In addition to regularly engaging with stockholders following the publication of Redwood’s annual proxy statement in 2019, the Chair of the Committee has met in person and telephonically with institutional stockholders over past years outside of “proxy season”, which allows for more extensive and in-depth outreach and feedback. Additional in-person meetings and teleconferences between the Chair of the Committee and institutional stockholders are contemplated in the future.
Feedback provided to the Chair of the Committee during 2019 and prior years has directly impacted the Committee’s approach to executive compensation and disclosures relating to executive compensation, including, for example:
The Committee’s decision to enhance disclosures within this CD&A to provide further insight regarding how it incorporates risk mitigants into Redwood’s executive compensation program, and how it selects the compensation benchmarking peer group and the separate group of publicly-traded mortgage REITs for financial performance comparisons.
The Committee’s decision to continue its ongoing practice of delivering a majority of the CEO’s target annual compensation in the form of long-term equity awards, with half of those awards in the form of PSUs.
The Committee’s decision in 2018 to update the structure of performance-based equity awards to provide that performance-based vesting of PSUs would be driven by both a book value TSR metric, which measures three-year book value growth and cash dividends paid, and a relative TSR metric, which adjusts vesting based on three-year TSR relative to a large group of publicly-traded mortgage REITs.
The Committee believes that this ongoing stockholder outreach process results in a more detailed understanding of recent “Say-on-Pay” voting results and provides a forum for valuable feedback from stockholders regarding their views on executive compensation philosophy, practices and disclosures.



40



“Say-on-Pay” Support from Stockholders
“Say-on-Pay” voting results since 2011 and stockholder outreach and feedback were factors considered by the Committee in: (i) updating in 2019 the structure of certain executives’ annual bonuses to incorporate an additional role-specific performance component during 2019, (ii) updating in December 2018 the structure of performance stock units (PSUs) to provide for vesting to be driven by both a book value TSR metric and a relative TSR metric, and (iii) otherwise maintaining during 2019 the basic structure of Redwood’s performance-based compensation program that has consistently been in place and supported over recent years.

Last year, 91% of stockholder votes cast at the May 2019 Annual Meeting of Stockholders supported the non-binding resolution to approve executive compensation. Since the inception of ‘‘Say-on-Pay’’ voting in May 2011, on average, approximately 90% of stockholder votes cast at Redwood's annual stockholder meetings supported the annual non-binding resolution to approve executive compensation.


41



Section II - Executive Compensation in 2019
 
 
 
 
Ø
Redwood's 2019 and Longer-Term Performance
 
 
 
 
Ø
Elements of Compensation in 2019
 
 
 
 
Ø
Process for Compensation Determinations for 2019
 
 
 
 
Ø
Compensation Benchmarking for 2019
 
 
 
 
Ø
2019 Base Salaries
 
 
 
 
 
 
Ø
2019 Performance-Based Annual Bonus Compensation
 
 
 
 
 
 
Ø
Performance-Based Annual Bonuses Earned for 2019
 
 
 
 
 
 
Ø
2019 Long-Term Equity-Based Incentive Awards
 
 
 
 
 
 
Ø
Vesting and Mandatory Holding Periods for 2019 Long-Term Equity-Based Incentive Awards

Redwood’s 2019 and Long-Term Performance

Redwood’s 2019 financial performance was strong, including:
Earnings per share of $1.46 (fully diluted, as reported under GAAP)
Payment of $1.20 per share in dividends, a 1.7% increase from dividends paid in 2018
Book value total stockholder return of 8.1%, which represents the change in GAAP book value, plus cash dividends paid
Return-on-equity (ROE) of 10.6% (based on 2019 GAAP financial results)

Redwood’s long-term performance was strong over the three-year period ending December 31, 2019:
Three-year TSR of 35.0%
Three-year book value TSR of 30.2%
Three-year average annual ROE of 10.6%
Graphics illustrating Redwood’s 2019 and three-year performance relative to other publicly-traded REITs with business models that share a common focus on investing in residential mortgages and related assets are included within the preceding “Executive Summary of CD&A” beginning on page 28 of this Proxy Statement.

Elements of Compensation in 2019
In 2019, cash compensation for Redwood’s NEOs included a base salary and a performance-based annual bonus. Annual bonuses for 2019 were primarily determined based on company financial performance, with individual and role-specific performance a secondary determinant. For each NEO, the Committee established target annual bonus amount at the beginning of 2019 that would be earned if Redwood's financial performance met a Committee-established target and the NEO’s performance merited target-level payment. In particular, one portion of each NEO’s annual bonus was determined based on company financial performance (referred to in this CD&A as the company performance component of target bonus or company performance bonus), and another portion of each NEO’s annual bonus was determined based on individual performance (referred to in this CD&A as the individual performance component of target bonus or individual performance bonus). In addition, for Mr. Cochrane, a portion of his annual bonus was determined based on a measure of Redwood's operating expense efficiency and, for Mr. Kanouse, a portion of his annual bonus was determined based on a measure of the financial performance of Redwood's residential mortgage banking business (in each case, referred to in this CD&A as a role-specific component of annual bonus).

42



The Committee generally intends that the base salary and annual bonus target for each NEO be appropriate in comparison to a market-based median benchmark, after taking into account factors such as the NEO’s role and responsibilities, competitive factors, and internal equity. In addition, the Committee believes that performance-based bonuses for each NEO should have adequate upside so that total annual compensation actually earned may reach the top-quartile of the market-based benchmark for strong performance.
The market-based benchmarks used by the Committee during 2019 were determined with the assistance of the Committee’s independent compensation consultant, FW Cook. The process included reviewing compensation practices of peer companies selected by the Committee (referred to in this CD&A as the compensation benchmarking peer group) as well as other market-based benchmark data provided to FW Cook by Aon plc (formerly referred to as McLagan), a third-party firm that is nationally recognized as qualified to provide such data. Further details regarding the compensation benchmarking peer group and benchmarking practices are provided on pages 44-47 within this CD&A under the heading “Compensation Benchmarking for 2019.”
For 2019, the Committee established the company performance component of the annual bonus for each NEO so that it would not be paid at an above-target level unless Redwood’s adjusted return-on-equity (Adjusted ROE) exceeded 9.7%, which was a level of Adjusted ROE performance above the level needed to support the payment of regular quarterly dividends declared by the Board of Directors’ in 2019. Adjusted ROE is a non-GAAP performance measure that is defined and described on pages 48-52 within this CD&A under the heading “2019 Performance-Based Annual Bonus Compensation.”*
With respect to long-term equity-based compensation, the Committee generally makes annual awards to NEOs in amounts, and subject to terms and vesting conditions, that provide an incentive to create long-term stockholder value and align the interests of NEOs with the interests of long-term stockholders. These awards are intended to provide performance-based compensation opportunities at levels that will be effective in retaining valued and productive executives. In determining the size of annual long-term equity-based compensation opportunities, the Committee uses the same or similar considerations as are applied when setting salaries and target annual bonus opportunities, with the value actually delivered a result of subsequent performance. For 2019, the value of annual long-term equity-based compensation granted at year-end to NEOs was determined after taking into account the Committee’s philosophy that:
Competitive pressure on NEO compensation levels from higher-paying related market sectors should be addressed with long-term equity-based awards. Annual target cash compensation amounts are generally targeted to be in a median range of the compensation benchmarking peer group, while long-term equity-based awards may be targeted above the median if justified by performance, experience, or the scope of the individual's role.
The terms and vesting conditions of long-term equity-based awards should result in realized compensation for NEOs that correlates with long-term stockholder value creation (through dividend distributions and share-price growth) over a minimum of three years. The value of long-term equity-based awards should also take into account Redwood’s overall performance and each NEO’s individual performance.
NEOs are provided with other benefits that are also available to all eligible employees of Redwood on a substantially similar basis. These benefits, which are further described below on pages 59-60 within this CD&A, include standard health and welfare benefits and the ability to participate in Redwood’s tax-qualified 401(k) plan and Employee Stock Purchase Plan. In addition, NEOs may participate in Redwood’s Executive Deferred Compensation Plan.





 
* Adjusted ROE is a non-GAAP measure calculated and reconciled to ROE determined in accordance with GAAP in Annex A.


43



Process for Compensation Determinations for 2019
Each year the Committee makes determinations regarding the compensation of Redwood’s NEOs. The process is dynamic and the Committee has the authority to re-examine and adjust any aspect of the compensation program or process it may determine to be necessary or appropriate to take into account changing circumstances throughout the year. As in prior years, during 2019 the Committee directly engaged and used the services of a nationally recognized compensation consultant, FW Cook, to assist it in, among other things, determining the elements of compensation and providing benchmarking analyses. FW Cook reports directly to the Committee and acts as the Committee’s consultant regarding director and executive officer compensation-related matters. FW Cook is not retained by Redwood or its management in any other capacity and the Committee has the sole authority to establish and terminate the relationship with FW Cook. In addition, the Committee conducted an assessment of the independence of FW Cook and concluded that no conflict of interest currently exists or existed in 2019 that would result in FW Cook not being able to provide advice to the Committee independently from management.

On an annual basis, FW Cook reviews the compensation program for Redwood's executive officers with the Committee and assesses the competitiveness of compensation levels and targets to evaluate whether the program is aligned with Redwood’s compensation philosophy and is externally competitive. In addition, FW Cook assists the Committee in determining the form and structure of the executive compensation program. FW Cook also provides the Committee with data regarding compensation practices among the compensation benchmarking peer group. FW Cook's analysis covers all elements of direct compensation, including base salary, annual incentives, and long-term incentives. Benefit and perquisite offerings at Redwood are also reviewed, as is total Redwood equity ownership by each NEO (and the value of that equity ownership at different share prices). FW Cook’s analysis assists the Committee in understanding the extent to which different elements of each NEO’s compensation are above or below benchmark market levels and in understanding the year-to-year changes in awarded, accumulated, and potential NEO compensation.

As part of its process for making compensation determinations for NEOs at the end of 2019, the Committee also considered the following:
Each NEO's self-assessment of his or her individual performance over the year;
Mr. Abate's recommendations with respect to the compensation of Mr. Robinson;
Mr. Abate's and Mr. Robinson's recommendations with respect to the compensation of the other NEOs;
FW Cook's directional recommendations regarding the elements of compensation for each of the CEO and President, and opinion on the recommendations developed by the CEO and President for the other NEOs. These recommendations and opinions were based on peer comparisons, other supplemental benchmarking data, and Redwood’s compensation philosophy.

Compensation Benchmarking for 2019

As in prior years, in 2019 the Committee asked FW Cook to conduct a market pay analysis with respect to various compensation matters, including compensation of NEOs. FW Cook’s market pay analysis relied on publicly disclosed executive compensation data from the compensation benchmarking peer group, as well as supplemental data provided to FW Cook by Aon plc (formerly referred to as McLagan). The supplemental data was obtained because not all of the compensation benchmarking peer group companies publicly disclose information for officers with responsibilities comparable to Redwood's NEOs. In addition, the supplemental data provided insight into executive compensation practices at competitors that are externally managed and, therefore, do not generally disclose comprehensive compensation data for their named executive officers, as well as private companies and divisions of larger public companies for which individual compensation data are not publicly disclosed. For example, many of the publicly-traded REITs referenced within the preceding "Executive Summary of CD&A" on page 34 of this Proxy Statement to which Redwood compares its performance are externally managed and do not publicly disclose comprehensive executive compensation information.



44



The supplemental data provided by Aon was reviewed and analyzed by FW Cook, who advised the Committee that the information could reasonably be relied upon for its intended purpose. Aon and its affiliates also provide Redwood with compensation-related data and consulting services, including data used for benchmarking compensation for employees below the NEO level, as well as limited other services, including advisory services related to Redwood's captive insurance company subsidiary.

The Committee considers the use of a market-based compensation analysis important for validating competitive positioning in attracting and retaining executive talent. Each year, as part of the competitive pay analysis, the Committee, after consultation with FW Cook, designates a compensation benchmarking peer group. The compensation benchmarking peer group is intended to include companies with which Redwood competes, including for business or for executive talent, and is determined using a pre-defined process and objective industry and size criteria, as detailed below.

The Committee recognizes that the compensation benchmarking peer group does not include generally higher-paying externally-managed REITs, mortgage-focused divisions of large publicly-traded financial institutions, private equity firms, and hedge funds with which Redwood competes for executive talent. These organizations are not included because they have different business economics and pay models from Redwood, and because comprehensive compensation data for their executives are generally not publicly available.

The description below details the process and objective criteria used to select the 2019 compensation benchmarking peer group of companies used for compensation benchmarking.

Step 1:
Begin with a broad database consisting of publicly traded, U.S.-based companies that are internally managed (externally-managed companies generally have not disclosed comprehensive compensation data and are therefore excluded)
  
Step 2:
Identify REITs and other companies most similar to Redwood (i.e., direct peers), including:
 
•  
Mortgage REITs, which are considered “direct peers” along with real estate development and financial services companies with a focus on mortgage servicing or mortgage-related assets
 
•  
Exclude all companies with market capitalization values outside of a 0.25 – 4.0x range compared to Redwood, subject to reasonable exceptions for key business competitors
  
Step 3:
Identify other relevant business and labor-market competitors:
 
•  
Financial services companies with both market capitalization value and net income in a 0.5 – 2.0x range compared to Redwood
 
•  
Remove bank holding companies and companies in the cash advance/pawn broker businesses, due to fundamental differences in the underlying business model
  
Step 4:
Select 15 to 25 companies for inclusion in the compensation benchmarking peer group:
 
•  
Include all companies identified in Step 2
 
•  
Include companies identified in Step 3 if they: (1) are included in the prior year’s compensation benchmarking peer group or (2) have been identified as a peer of Redwood’s most-direct peers (e.g., a peer of another mortgage REIT identified in Step 2)
 
•  
Add additional companies identified in Step 3 to: (1) ensure that the sample size is sufficient (i.e., 15 to 25 total companies) and (2) position Redwood closer to the median on key size measures, focusing primarily on market capitalization and net income and secondarily on revenue and total assets






45



2019 Compensation Benchmarking Peer Group. Based on the above-described methodology, the compensation benchmarking peer group of companies designated by the Committee in 2019 for use in the competitive pay analysis prepared by FW Cook consisted of the following 17 companies:
•  
AllianceBernstein Holding L.P.
 
•  
Arbor Realty Trust, Inc.
•  
Capstead Mortgage Corporation
 
•  
Chimera Investment Corporation
•  
Cohen & Steers, Inc.
 
•  
Dynex Capital, Inc.
•  
Essent Group Ltd.
 
•  
Federated Investors, Inc.
•  
Hannon Armstrong Sustainable
 
•  
iStar Financial Inc.
 
Infrastructure Capital, Inc.
 
•  
Main Street Capital Corporation
•  
Ladder Capital Corp.
 
•  
New York Mortgage Trust, Inc.
•  
MFA Financial, Inc.
 
•  
PennyMac Financial Services, Inc.
•  
NMI Holdings, Inc.
 
•  
Stifel Financial Corp.
Changes to Compensation Benchmarking Peer Group. The Committee reviews the compensation benchmarking peer group and the selection process and criteria on an annual basis to confirm that they continue to reflect relevant business and labor market competitors for whom comprehensive data is available. Accordingly, the companies included as peers may change from year to year as a result of updates to the selection process and criteria and changes in the real estate and capital markets. The following were changes made to Redwood's peer group constituent companies from 2018 to 2019:
Arbor Realty Trust, Inc., a multifamily mortgage-focused REIT of relevant size was added.
CYS Investments, Inc. and Nationstar Mortgage Holdings Inc., were removed as they were acquired in 2018.
Peer Groups Referenced in this CD&A. Within the Executive Summary of CD&A and this main body of CD&A, there is discussion and description of the Committee’s use of two distinct peer groups and how those groups are constructed and used by the Committee. In particular:
Performance Peers (“mREIT Peers”). Within the Executive Summary of CD&A there is reference to Redwood’s Performance Peers (also referred to as “mREIT Peers”). Redwood has regularly compared its financial performance to this group of publicly-traded mortgage REITs because their business models share a common focus on investing in residential mortgages and related assets
Compensation Benchmarking Peer Group (“Benchmarking Peers”). Within this main body of CD&A there is reference to Redwood’s Compensation Benchmarking Peer Group (also referred to as “Benchmarking Peers”). Market-based compensation benchmarking is used by the Committee and its compensation consultant, FW Cook, to evaluate executive compensation relative to peer companies and to inform the Committee’s compensation determinations. The Benchmarking Peers are intended to include companies with which Redwood competes, including for business or for executive talent, and are determined using a pre-defined process and objective industry and size criteria, as detailed above.








46



Set forth below is a review of the overlap between the mREIT Peers and the Benchmarking Peers together with related commentary:

2019 mREIT Peers
(Trading Symbols):
 
Included in 2019 Benchmarking
Peer Group?
 

Commentary on exclusion from
2019 Benchmarking Peer Group:
AG Mortgage Investment Trust Inc. (MITT)
 
No
 
Externally managed REIT that does not publicly disclose executive compensation data
AGNC Investment Corp.
(AGNC)
 
No
 
Did not meet objective size criteria - market capitalization exceeded 4x of Redwood’s
Annaly Capital Management, Inc. (NLY)
 
No
 
Did not meet objective size criteria - market capitalization exceeded 4x of Redwood’s
Anworth Mortgage Asset Corp. (ANH)
 
No
 
Externally managed REIT that does not publicly disclose executive compensation data
Armour Residential REIT, Inc. (ARR)
 
No
 
Externally managed REIT that does not publicly disclose executive compensation data
Capstead Mortgage Corp.
(CMO)
 
Yes
 
 
Chimera Investment Corporation (CIM)
 
Yes
 
 
Dynex Capital Inc.
(DX)
 
Yes
 
 
Invesco Mortgage Capital Inc. (IVR)
 
No
 
Externally managed REIT that does not publicly disclose executive compensation data
MFA Financial, Inc.
(MFA)
 
Yes
 
 
New Residential Investment Corp. (NRZ)
 
No
 
Externally managed REIT that does not publicly disclose executive compensation data
New York Mortgage Trust Inc. (NYMT)
 
Yes
 
 
PennyMac Mortgage Investment Trust (PMT)
 
No
 
Externally managed REIT that does not publicly disclose executive compensation data
Two Harbors Investment Corp. (TWO)
 
No
 
During 2019, TWO was an externally managed REIT that did not publicly disclose executive compensation data


2019 Base Salaries
Base salary is a traditional element of executive compensation. The Committee establishes base salaries for NEOs after reviewing the market data for similar executives, as well as the experience, skills, and responsibilities of each NEO. Base salaries are reviewed annually, and the Committee may adjust salaries in connection with this review or at other times throughout the year, including, for example, at the time of a promotion.

The Committee made determinations, after consultation with FW Cook, with respect to 2019 NEO base salaries as follows:
Mr. Abate. In December 2018, the Committee determined that the 2019 base salary for Mr. Abate, Redwood's Chief Executive Officer, would be increased from $675,000 to $750,000 per annum.
Mr. Robinson. In December 2018, the Committee determined that the 2019 base salary for Mr. Robinson, Redwood's President, would be increased from $525,000 to $600,000 per annum.
Mr. Stone. In December 2018, the Committee determined that the 2019 base salary for Mr. Stone, Redwood’s Executive Vice President and General Counsel, would remain at its year-end 2018 level of $400,000 per annum.

47



Mr. Cochrane. In December 2018, the Committee determined that the 2019 base salary for Mr. Cochrane, Redwood’s Chief Financial Officer, would be increased from $350,000 to $375,000 per annum.
Mr. Kanouse. In December 2018, the Committee determined that the 2019 base salary for Mr. Kanouse, Redwood's Managing Director - Head of Residential, would be increased from $450,000 to $475,000 per annum.

2019 Performance-Based Annual Bonus Compensation
Redwood’s annual bonus program is designed to reward NEOs based on Redwood’s financial performance and each NEO’s individual performance. As an example, and as illustrated in the graph below, there has been significant variability in the performance-based annual bonuses paid to Redwood’s CEO over the last five years, reflecting the variations in Redwood’s financial performance over the same period. (The graph below includes annual bonus amounts paid to prior CEO, Marty Hughes.)    
403750552_annualceobonuschart3172020b.jpg

Components of 2019 Annual Bonuses. In order to align their interests with the interests its stockholders, the Committee determined prior to the end of the first quarter of 2019, after consultation with FW Cook, that 2019 target annual bonuses for NEOs would continue to be weighted as follows:

Mr. Abate, Mr. Robinson, and Mr. Stone:
75% on the achievement of a predetermined target level of a company financial performance metric; and
25% on the achievement of pre-established individual goals relating to strategic, business, operational, governance and risk management objectives.
Mr. Cochrane and Mr. Kanouse:
50% on the achievement of a predetermined target level of a company financial performance metric;
25% on role-specific measures of company performance (operating expense efficiency and residential mortgage banking business, respectively); and
25% on the achievement of pre-established individual goals relating to strategic, business, operational, governance and risk management objectives.
The weightings described above were used so that most of an NEO’s target annual bonus will depend directly on company financial performance, while also providing incentives for achievement of role-specific and individual strategic,

48



business, operational, governance and risk management goals that the Committee believes are in the interests of Redwood and its stockholders, but in some cases may be difficult to quantitatively link to company financial performance.

Financial Performance Metric for 2019 Annual Bonuses. During the first quarter of 2019, after a review of Redwood's compensation program, and following consultation with FW Cook, the Committee determined to continue to use in 2019 the same financial metric to underlie the company performance bonus that was used in 2018 and prior years. As noted above, the company performance bonus is based on Adjusted ROE. Adjusted ROE is a non-GAAP financial performance measure that reflects GAAP earnings on average equity capital adjusted to exclude certain unrealized mark-to-market gains and losses from equity. Because Adjusted ROE is a ratio of earnings to equity capital, the adjustment to exclude these unrealized mark-to-market gains and losses is made to enable the calculation of an “apples-to-apples” non-GAAP ratio of earnings to equity capital for purposes of evaluating financial performance.
For example, under GAAP, an unrealized loss recognized in equity capital but not recognized in earnings has the impact, all other factors being equal, of increasing the ratio of earnings to equity capital. Adjusted ROE addresses this by increasing equity capital by the amount of the unrealized loss, allowing for a non-GAAP calculation of a ratio using internally consistent earnings and equity capital amounts.
Conversely, under GAAP, an unrealized gain recognized in equity capital but not recognized in earnings has the impact, all other factors being equal, of decreasing the ratio of earnings to equity capital. Adjusted ROE addresses this by decreasing equity capital by the amount of the unrealized gain, allowing for a non-GAAP calculation of a ratio using internally consistent earnings and equity capital amounts.
The Committee believes that Adjusted ROE provides an appropriate measure of financial performance for a company like Redwood, whose primary source of earnings is income from investments in mortgage loans and other real estate-related assets, as well as from mortgage banking activities. It is also a performance metric that, over the long-term, should be correlated with long-term stockholder returns. Adjusted ROE is reconciled to ROE determined in accordance with GAAP for the years 2015 through 2019 in Annex A to this Proxy Statement.

Financial Performance Target for 2019 Annual Bonuses. For 2019, the Committee (in consultation with, and taking into account input from, management, FW Cook, and the Board of Directors) reviewed the process used in determining the company performance component of annual bonuses for executive officers. The Committee decided to continue its practice of using an Adjusted ROE financial performance target determined at the beginning of each year based on a risk-free interest rate plus an incremental premium determined by the Committee to be appropriate (each of which can vary from year to year). This decision continued to be premised, as it was in 2018, in large part on the nature of Redwood’s business model, which has had a significant focus on investing in residential mortgage loans and other real-estate related loans and debt instruments. Returns that Redwood can earn on new investments in residential mortgage loans and other real-estate related loans and debt investments are, to a certain extent, correlated with the market-driven interest rates for these and other types of loans and debt instruments (which rates depend on the perceived risk of these investments). These market-driven interest rates are typically analyzed as the risk-free interest rate for investment in U.S. Treasury obligations (or other debt backed by the full faith and credit of the U.S.) with a comparable duration plus an incremental risk premium above the risk-free rate.
The decision to use a target based on a risk-free interest rate plus an incremental premium was also premised on the fact that management believes that investors focused on investing in companies like Redwood also compare return on equity to risk-free rates of return in evaluating Redwood’s financial performance and that the Adjusted ROE financial performance target should take into account stockholders’ return and dividend yield expectations. As a result, the Committee also reviewed recent and historical dividend yields on Redwood’s common stock and determined a range of incremental premiums above the risk-free rate that would be consistent with those yields.
In addition to its review of market returns Redwood could earn on new investments and the level of Adjusted ROE financial performance necessary to meet stockholders’ return and dividend yield expectations, the Committee reviewed the level of Adjusted ROE performance necessary to support the payment of regular quarterly dividends declared by the Board of Directors.
The Committee believes that setting an Adjusted ROE performance target at an appropriate level above the risk-free interest rate (by adding the incremental premium to the risk-free interest rate) establishes an incentive for executives to

49



achieve attractive financial performance for Redwood (and aligns the interests of executives and stockholders in seeking this level of financial performance), without exposing Redwood to inappropriate risk. If risk-free interest rates were to rise significantly in future years, all other factors being equal, the company financial performance target used for determining the company performance component of annual bonuses for executive officers could be increased in recognition of the fact that accomplishing the same financial performance in a higher interest rate environment might only require lower risk investments. Conversely, if risk-free interest rates were to decline in future years, all other factors being equal, the company financial performance target used for determining the company performance component of annual bonuses for executive officers could be lowered in recognition of the fact that reaching for the same financial performance in a lower interest environment would necessitate taking greater investment or other risks. Overall, the Committee believes that the use of a performance target that varies from year to year provides the ability to adjust compensation incentives in a manner consistent with Redwood’s business model and the market environment in which Redwood operates.
Following this process for determining company performance bonuses, and after consultation with FW Cook, the Committee determined that: (i) with respect to the 2019 financial performance target, the risk-free interest rate for this purpose should be 2.5%, which represented the average interest rate during the prior two calendar years on ten-year U.S. Treasury obligations (after rounding), with the ten-year risk-free interest rate being used because it generally corresponded to the weighted average duration of investments at Redwood; (ii) with respect to 2019 company performance bonuses for NEOs, target bonus amounts would be earned if Adjusted ROE equaled 9.7%, which represented a level of financial performance above the level commensurate with earnings equal to regular quarterly dividends declared by the Board of Directors in 2019; and (iii) with respect to 2019 company performance bonuses for NEOs, no bonuses would be earned if Adjusted ROE was 5.7% or less; bonuses below or at the target bonus amounts would be earned if Adjusted ROE was between 5.7% and 9.7%; and bonuses in excess of the target bonus amounts would not be earned unless Adjusted ROE was more than 9.7%.
The use of an initial performance threshold of greater than 5.7% Adjusted ROE for the payment of any portion of target company performance bonuses represents a determination by the Committee that financial performance below that threshold is not above the risk-free interest rate by a significant enough margin to merit payment of any portion of this component of annual bonuses. The payment of target company performance bonuses or a portion of target company performance bonuses for Adjusted ROE in the range between 5.7% and 9.7% reflects the determination by the Committee that financial performance within this range merits payment of below-target or target company performance bonuses as Adjusted ROE increases above the initial performance threshold to 9.7%.
The Committee also determined that for Adjusted ROE in excess of 9.7%, subject to the maximum total bonus opportunity for each NEO noted below and assuming the individual performance bonuses (and role-specific bonus components of Mr. Cochrane and Mr. Kanouse) are earned at target level, the company performance bonus would be increased by a pro-rated amount above the target company performance bonus (based on a straight-line, mathematical interpolation) such that the total annual bonus for an NEO would be four times the total target bonus for that NEO when Adjusted ROE is 20%.
With respect to the role-specific components of annual bonus applicable to Mr. Cochrane and Mr. Kanouse, the Committee determined to (i) evaluate Mr. Cochrane’s role-specific component of annual bonus in the context of year-over-year change in Redwood’s operating expense efficiency ratio (calculated by dividing total operating expenses by average total capital (equity plus long-term debt), after excluding certain variable expense amounts) and (ii) evaluate Mr. Kanouse’s role-specific component of annual bonus in the context of a return on capital target (or contribution margin target) for Redwood’s residential mortgage banking business consistent with the company-wide Adjusted ROE target, and in each case providing for the payment of an above- or below-target amount of this component of annual bonus on a percentage basis consistent with the above- and below-target bonus opportunities described above for the company performance component of annual bonus determined based on Adjusted ROE.
Additionally, the Committee determined prior to the end of the first quarter of 2019 that individual performance in 2019 for each NEO would be reviewed in the context of, among other things, the specific pre-determined goals and factors discussed below under “Performance-Based Annual Bonuses Earned for 2019 — Individual Performance Component of 2019 Annual Bonuses.” As in past years, during 2019 these individual factors and goals were subject to adjustment when circumstances warranted, at the discretion of the Committee. For 2019, the individual performance

50



component of annual bonuses could be earned up to 200% of the target amount depending on the Committee’s assessment of individual performance.
The Committee also established that the maximum annual bonus opportunity (i.e., the maximum sum of the two components of the annual bonus) in 2019 would continue to be $5 million for each of Mr. Abate and Mr. Robinson, and $3 million for each of the other NEOs. These maximum amounts were determined after consultation with FW Cook, and were considered appropriate based on each NEO’s position, responsibilities, required level of performance to reach the maximum, and competitive considerations.

NEOs' 2019 Target Annual Bonus Amounts. In addition, the Committee made determinations, after consultation with FW Cook, with respect to each NEO's target annual bonus (expressed as a percentage of 2019 base salary) as set forth below. In each case of an increase to an NEO’s target annual bonus, the increase was made after a review by the Committee of market-based benchmarks for the position and consideration of competitive factors and the NEO’s role, experience, and performance at Redwood.

Mr. Abate. In December 2018, the Committee determined that the 2019 target bonus percentage for Mr. Abate would remain at 175% of base salary for 2019.
Mr. Robinson. In December 2018, the Committee determined that the 2019 target bonus percentage for Mr. Robinson would be increased from 150% to 165% of base salary for 2019.
Mr. Stone. In December 2018, the Committee determined that the 2018 target bonus percentage for Mr. Stone would be increased from 115% to 120% of base salary for 2019.
Mr. Cochrane. In December 2018, the Committee determined that the 2019 target bonus percentage for Mr. Cochrane would be increased from 110% to 125% of base salary for 2019.
Mr. Kanouse. In December 2018, the Committee determined that the 2019 target bonus percentage for Mr. Kanouse would be increased from 135% to 140% of base salary for 2019.
The table below sets forth the 2019 target annual bonuses that were established for each NEO.                
NEO
 
2019 Base Salary
(per annum)
 
2019 Target Annual Bonus
(as % of
Base Salary)
 
2019 Target
Annual Bonus
($)
Mr. Abate, Chief Executive Officer  
 
$
750,000

 
175%
 
$
1,312,500

Mr. Robinson,
President
 
$
600,000

 
165%
 
$
990,000

Mr. Stone,
Executive Vice President and General Counsel
 
$
400,000

 
120%
 
$
480,000

Mr. Cochrane,
Chief Financial Officer
 
$
375,000

 
125%
 
$
468,751

Mr. Kanouse,
Managing Director - Head of Residential
 
$
475,000

 
140%
 
$
665,000


51




Form of Payment of 2019 Performance-Based Annual Bonuses. In addition, the Committee decided, after consultation with FW Cook, to continue an existing practice that results in a portion of annual bonuses not being paid fully in cash in certain above-target performance circumstances. In particular, for 2019 with respect to each of the NEOs, if the performance-based annual bonuses earned by an NEO for 2019 exceeded two times the 2019 target annual bonus opportunity designated for that NEO, the excess portion would be paid 50% in cash and 50% in the form of vested DSUs with a mandatory three-year holding period.

Under this formula, as an NEO’s annual bonus increases above a specified multiple of target, an increasingly smaller percentage of that bonus is paid in cash. Payment of annual bonus amounts in this manner invests a greater portion of the NEOs’ annual bonuses in Redwood's future financial performance, which the Committee believes supports the alignment of executive and long-term stockholder interests.
Performance-Based Annual Bonuses Earned for 2019

Annual performance-based bonuses earned by NEOs for 2019 consisted of both a company performance component and an individual performance component (as well as a role-specific bonus component for each of Mr. Cochrane and Mr. Kanouse). A further discussion of each of these components is set forth below.

Company Performance Component of 2019 Annual Bonuses.  Redwood’s Adjusted ROE for 2019 was 10.9%. Accordingly, the company performance component of annual bonuses earned for 2019 was above the target amount, as set forth in the table below. In addition, in connection with determining the company performance component of annual bonuses earned for 2019, the Committee excluded the impact on Redwood’s financial performance of certain purchase accounting-related items and out-of-pocket transaction expenses related to acquisitions completed within 2019 because they were not considered reflective of Redwood’s overall 2019 performance. Further detail on these 2019 acquisition-related items and expenses is set forth in Annex A to this Proxy Statement.
NEO
 
Company
Performance
Component of
2019 Target
Annual Bonus
($)
 
2019 Company
Performance
Component of
Annual Bonus
Earned
($)
Mr. Abate,
Chief Executive Officer
 
$
984,375

 
$
1,679,116

Mr. Robinson,
President
 
$
742,500

 
$
1,266,533

Mr. Stone,
Executive Vice President and General Counsel
 
$
360,000

 
$
614,077

Mr. Cochrane,
Chief Financial Officer
 
$
234,375

 
$
399,789

Mr. Kanouse,
Managing Director - Head of Residential
 
$
332,500

 
$
567,168




52




Individual Performance and Role-Specific Components of 2019 Annual Bonuses.  For 2019, the individual performance components of annual bonuses were determined after a review of each NEO’s individual achievements and contributions to the collective achievements of the senior management team. The Committee reviewed the individual performance of each of these NEOs, which included a review of each NEO’s self-assessment and the assessment by Mr. Abate of Mr. Robinson, and by Mr. Abate and Mr. Robinson of the other NEOs. Among other factors, the Committee considered each NEO’s contribution to the achievement of the company-wide goals noted below in assessing each NEO’s individual performance for 2019. With respect to each of these goals, the Committee took into account various factors in evaluating the level of attainment of the goal and each NEO’s contribution to achieving the goal, including the principal factors described below and the related level of attainment (presented in italics after each listed goal). In considering these goals and factors, the Committee did not assign specific weightings to each factor and goal, but instead considered them together as part of a comprehensive qualitative review.

Goal: Increase assets held by Redwood within the parameters of deploying capital into housing credit-related assets with attractive risk-adjusted returns that will contribute to increasing net interest income and a strong contribution margin from Redwood’s investment portfolio; optimize investment portfolio by opportunistically selling investments and redeploying capital; and improve operating efficiency through growing the investment portfolio without a commensurate increase in associated operating expense.
The Committee evaluated achievement of this goal in the context of various factors, including that during 2019: Redwood deployed $1.1 billion of capital through a combination of its own operating and securitization platforms and acquisition activity; Redwood was a leading participant in several distinct sectors of the housing credit markets and Redwood’s portfolio evolved to incorporate a diverse mix of residential, business purpose residential, and multifamily investments; and Redwood increased net interest income above both 2018 and 2017 levels and improved risk-adjusted returns through its portfolio optimization activities while effectively managing related operating expense.
Goal: Successfully complete Redwood’s acquisition of the 5 Arches business purpose lending platform and continue to maintain the capability to assess and respond to acquisition opportunities that can advance Redwood’s strategic initiatives relating to addressing a broad spectrum of the housing finance markets.
The Committee evaluated achievement of this goal in the context of various factors, including that during 2019: Redwood completed its acquisition of 5 Arches in March 2019; Redwood effectively responded to the additional CoreVest acquisition opportunity that arose in mid-2019 and successfully completed the acquisition of CoreVest in October 2019; and Redwood furthered its strategic objective of expanding into the business purpose mortgage lending sector by initiating the coordination of the 5 Arches and CoreVest loan origination platforms under a unified leadership structure, leveraging the competitive strengths of both businesses to position Redwood for future growth in this sector.
Goal: Position Redwood’s residential mortgage banking business to maintain significant mortgage loan purchase volume while increasing efficiency to enable a reduced level of working capital to support this business; monitor and prepare to capitalize on any federal housing finance reform that may level the competitive landscape between the private sector and the government-sponsored enterprises (“GSEs”), Fannie Mae and Freddie Mac; and enhance information technology solutions in furtherance of these goals.
The Committee evaluated achievement of this goal in the context of various factors, including that during 2019: Redwood continued to purchase a significant volume of residential mortgage loans and, while loan purchase volume decreased compared to 2018, Redwood was able to maintain a strong profit margin for this business by reducing its required working capital; Redwood engaged in effective advocacy with Federal regulatory agencies and other stakeholders in GSE reform relating to allowing the private sector to better compete with the GSEs; and Redwood initiated its efforts to transform its residential loan acquisition platform by implementing and planning for IT enhancements that will assist loan sellers in more efficiently transacting with Redwood, including through automation of key processes relating to the revalidation of underwriting data.

53



Goal: Maintain a strong corporate culture, an effective risk management structure, and an engaged workforce; effectively communicate Redwood’s corporate mission to stakeholders; and positively impact Redwood’s employees and the communities Redwood operates in.
The Committee evaluated achievement of this goal in the context of various factors, including that during 2019: Redwood implemented an updated risk management structure intended to track the evolution of Redwood’s expanding business activities; Redwood continued to engage its workforce through townhall meetings, regular communications from the CEO, career development, mentoring and learning programs, a women’s employee resource group, and other corporate culture initiatives; Redwood continued to measure and track a high level of employee engagement through a nationally recognized survey methodology; and Redwood and its workforce engaged in numerous charitable giving and volunteer opportunities.

For 2019, the role-specific components of annual bonus applicable to Mr. Cochrane and Mr. Kanouse were separately determined, as follows. With respect to the role-specific component of annual bonus applicable to Mr. Cochrane, the Committee reviewed the year-over-year change in Redwood’s operating expense efficiency ratio (as defined above), excluding, for consistency and as applicable, the impact of the 2019 acquisition-related items and expenses described above under the heading “Company Performance Component of 2019 Annual Bonuses”, and determined that the results merited an above-target payment for Mr. Cochrane with respect to this component of his annual bonus. With respect to the role-specific component of annual bonus applicable to Mr. Kanouse, the Committee reviewed the 2019 return on capital (or contribution margin) generated by Redwood’s residential mortgage banking business, which results were above the target previously established and resulted in the Committee determining that the results merited an above-target payment for Mr. Kanouse with respect to this component of his annual bonus.
Based on its review, the Committee determined the individual performance and role-specific components of annual bonuses for each NEO for 2019, as set forth in the table below.

NEO
 
Individual
Performance
Component of
2019 Annual Bonus Earned
($)
 
Role-Specific
Performance
Component of
2019 Annual Bonus Earned
($)
 
2019 Total of Individual & Role-Specific
Performance
Components of
Annual Bonus
Earned
($)
Mr. Abate,
Chief Executive Officer
 
$
574,219

 
N.A.
 
$
574,219

Mr. Robinson,
President
 
$
495,000

 
N.A.
 
$
495,000

Mr. Stone,
Executive Vice President and General Counsel
 
$
144,000

 
N.A.
 
$
144,000

Mr. Cochrane,
Chief Financial Officer
 
$
117,188

 
$
198,182

 
$
315,370

Mr. Kanouse,
Managing Director - Head of Residential
 
$
166,250

 
$
338,960

 
$
505,210












54



2019 Long-Term Equity-Based Incentive Awards

Equity ownership in Redwood provides an important linkage between the interests of stockholders and executives by rewarding long-term stockholder value creation. To meet this objective, officers, directors, key employees, and other persons expected to contribute to Redwood's management, growth, and profitability are eligible to receive long-term equity-based awards. The Committee oversees the issuance of these awards to NEOs. The Committee, in consultation with FW Cook, determines the types and sizes of awards granted based upon a number of factors, including the NEO’s position, responsibilities, total compensation level, individual and company financial performance, competitive factors, and market-based benchmarks.

The Committee’s normal practice is to make long-term equity-based awards to NEOs at the regularly scheduled (pre-established) fourth quarter meeting of the Committee, which for 2019 occurred on December 12, 2019. On December 12, 2019, the Committee made 2019 year-end long-term equity-based awards to NEOs in two forms: DSUs and PSUs, the key terms of which are summarized below.
The DSUs granted on December 12, 2019 will vest over four years, with 25% vesting on January 31, 2021, and an additional 6.25% vesting on the last day of each subsequent quarter (beginning with the quarter ending March 31, 2021), with full vesting occurring on December 11, 2023. Shares of Redwood common stock underlying these DSUs will be distributed to the recipients not earlier than December 11, 2023 and not later than December 31, 2023, unless electively deferred under the terms of Redwood’s Executive Deferred Compensation Plan. The number of DSUs granted to each officer was determined as a targeted dollar amount, divided by the closing price of Redwood’s common stock on the grant date.
The PSUs granted on December 12, 2019 are performance-based equity awards which provide for vesting of 0% to 250% of the target number of PSUs granted, with the target number of PSUs adjusted to reflect the value of any dividends declared on Redwood common stock during the vesting period (as further described below). Vesting of these PSUs will generally occur based on the performance metrics described below during the three-year measurement period and continued employment through January 1, 2023.
Performance-based vesting of the PSUs granted in December 2019 will generally occur as of January 1, 2023 based on a three-step process as described below.
First, baseline vesting will range from 0% - 200% of the target number of PSUs granted based on the level of book value total stockholder return (“book value TSR”) attained over a three-year performance measurement period of January 1, 2020 through December 31, 2022, with 100% of the target number of PSUs vesting if three-year book value TSR is 25%. Book value TSR for the PSUs granted in December 2019 is defined as the percentage by which Redwood’s GAAP book value per share (after reversing the net impact of specified acquisition-related accounting items) has increased or decreased as of the last day of the three-year performance measurement period relative to the first day of such period, plus the value of cash dividends declared and/or paid during such period on our common stock. In particular, baseline vesting of PSUs will be in accordance with the following table:

            
 
Book Value TSR (“bvTSR”)
 
% of
Performance-Based Vesting*
 
 
Less than 50% bvTSR target
 
0%
 
 
50% of bvTSR target
 
50%
 
 
100% of bvTSR target
 
100%
 
 
150% or greater of bvTSR target
 
200%
 
            
*
If actual bvTSR is between two of the performance thresholds set forth in this table, the percentage of baseline vesting shall be determined based on a straight-line, mathematical interpolation between the applicable performance-based vesting percentages.




55



Second, the baseline vesting level would then be adjusted to increase or decrease by up to an additional 50 percentage points based on Redwood’s relative total stockholder return (“relative TSR”) over the three-year performance measurement period compared to the component companies of the FTSE Nareit Mortgage REIT Index, with median relative TSR performance correlating to no adjustment from the baseline level of vesting. In particular, adjustments to baseline vesting of PSUs will be in accordance with the following table:

 
Relative TSR
 
Relative TSR Adjustment to Baseline Vesting*
 
 
Less than 25th percentile
 
minus 50 percentage points
 
 
25th percentile
 
minus 50 percentage points
 
 
50th percentile
 
No change
 
 
75th percentile or greater
 
plus 50 percentage points
 
    
*
 If actual relative TSR is between two of the performance thresholds set forth in this table, the adjustment to baseline vesting shall be determined based on a straight-line, mathematical interpolation between the applicable percentage point adjustments.

Third, if the vesting level after steps one and two is greater than 100% of the target number of PSUs, but absolute total shareholder return (“TSR”) is negative over the three-year performance measurement period, vesting would be capped at 100% of target number of PSUs. TSR is defined as the percentage by which the per share price of Redwood’s common stock has increased or decreased as of the last day of the three-year performance measurement period relative to the first day of such period, adjusted to reflect the reinvestment of all dividends declared and/or paid on our common stock.

Vested shares of Redwood common stock underlying these PSUs will be distributed to the recipients not later than May 1, 2023, unless electively deferred under the terms of Redwood's Executive Deferred Compensation Plan. Prior to vesting, no dividend equivalent rights are paid in respect of PSUs.
At the time of vesting, the value of any dividends paid during the vesting period will be reflected in the PSUs by increasing the target number of PSUs granted by an amount corresponding to the incremental number of shares of Redwood common stock that a stockholder would have acquired during the three-year performance measurement period had all dividends during that period been reinvested in Redwood common stock on the applicable dividend payment dates.
After the vesting of these PSUs on January 1, 2023 (if any vest) and until the delivery of the underlying shares of Redwood common stock, the underlying vested award shares will have attached dividend equivalent rights, resulting in the payment of dividend equivalents each time Redwood pays a common stock dividend.

The terms of the DSUs and PSUs granted on December 12, 2019 are established under a deferred stock unit award agreement or performance stock unit award agreement, as applicable, and Redwood’s 2014 Incentive Plan. These terms include provisions relating to dividend equivalent rights, forfeiture, retirement, mandatory net settlement for income tax withholding purposes, and change-in-control.

56




NEOs' 2019 Long-Term Equity Awards. The Committee made determinations, after consultation with FW Cook, with respect to the value of each NEO's 2019 long-term equity-based incentive awards set forth below. In each case, the value of long-term equity-based incentive awards were determined after a review by the Committee of market-based benchmarks for the position and consideration of competitive factors and the NEO’s role, experience, and performance at Redwood.

Mr. Abate. In December 2019, the Committee determined that the aggregate grant date fair value of year-end, long-term equity-based incentive awards granted to Mr. Abate would be $3.75 million - awarded $1.875 million in DSUs and $1.875 million in PSUs.
Mr. Robinson. In December 2019, the Committee determined that the aggregate grant date fair value of year-end, long-term equity-based incentive awards granted to Mr. Robinson would be $3.5 million - awarded $2.25 million in DSUs and $1.25 million in PSUs.
Mr. Stone. In December 2019, the Committee determined that the aggregate grant date fair value of year-end, long-term equity-based incentive awards granted to Mr. Stone would be $1.05 million - awarded $525,000 in DSUs and $525,000 in PSUs.
Mr. Cochrane. In December 2019, the Committee determined that the aggregate grant date fair value of year-end, long-term equity-based incentive awards granted to Mr. Cochrane would be $850,000 - awarded $425,000 in DSUs and $425,000 in PSUs.
Mr. Kanouse. In December 2019, the Committee determined that the aggregate grant date fair value of year-end, long-term equity-based incentive awards granted to Mr. Kanouse would be $1.1 million - awarded $550,000 in DSUs and $550,000 in PSUs.
The number and grant date fair value of DSUs and PSUs comprising the 2019 year-end long-term equity-based awards granted to each NEO in December 2019 are set forth in the table below:
                                        
 
 
Deferred Stock Units
(“DSUs”)(1)
 
Performance Stock Units
(“PSUs”)(1)
NEO
 
#
 
Aggregate
Grant Date
Fair Value
 
#
 
Aggregate
Grant Date
Fair Value
Mr. Abate,
Chief Executive Officer
 
113,636

 
$
1,875,000

 
109,457

 
$
1,875,000

Mr. Robinson,
President
 
136,363

 
$
2,250,000

 
72,971

 
$
1,250,000

Mr. Stone,
Executive Vice President and General Counsel
 
31,818

 
$
525,000

 
30,648

 
$
525,000

Mr. Cochrane,
Chief Financial Officer
 
25,757

 
$
425,000

 
24,810

 
$
425,000

Mr. Kanouse,
Managing Director - Head of Residential
 
33,333

 
$
550,000

 
32,107

 
$
550,000

 
(1)
Grant date fair value determined at the time the grant was made in accordance with FASB Accounting Standards Codification Topic 718. The value of dividend equivalent rights associated with DSUs and the value of any increase in the target number of PSUs to reflect dividends paid during the performance period were taken into account in establishing the grant date fair value of these DSUs and PSUs under FASB Accounting Standards Codification Topic 718 at the time the awards were granted. Therefore, dividend equivalent right payments and any increase in the target number of PSUs to reflect dividends paid during the performance period are not considered part of the compensation or other amounts reported in the summary table of NEO compensation under “Executive Compensation Tables — Summary Compensation,” or reported below under “Executive Compensation Tables — Grants of Plan-Based Awards.”
        

57




Vesting and Mandatory Holding Periods for 2019 Long-Term Equity-Based Incentive Awards

DSUs Granted in December 2019.  The DSUs granted to NEOs in 2019 have the four-year vesting schedule described above on page 55 within this CD&A under the heading “2019 Long-Term Equity-Based Incentive Awards.” Notwithstanding this vesting schedule, while continuously employed, the NEOs are subject to a mandatory four-year holding period with respect to these DSU awards, with the result that these DSU awards are not scheduled to be distributed to recipients in shares of Redwood common stock until four years following the respective grant dates (i.e., in December 2023).

PSUs Granted in December 2019. The PSUs granted to NEOs in December 2019 have the three-year vesting schedule described above on pages 55-57 within this CD&A under the heading “2019 Long-Term Equity-Based Incentive Awards.” For NEOs receiving these awards, if any of these PSUs vest, they are not scheduled to be distributed to recipients in shares of Redwood common stock until May 1, 2023.

58



Section III - Other Compensation, Plans and Benefits
 
 
 
 
Ø
Deferred Compensation
 
 
 
 
Ø
Employee Stock Purchase Plan
 
 
 
 
Ø
401(k) Plan and Other Matching Contributions
 
 
 
 
Ø
Other Compensation and Benefits
 
 
 
 
Ø
Severance and Change of Control Arrangements

Deferred Compensation
Under Redwood’s Executive Deferred Compensation Plan, NEOs (and other eligible officers of Redwood) may elect to defer up to 100% of their cash compensation as well as dividend equivalent right payments on DSUs and vested PSUs and, under certain circumstances, can also elect to re-defer scheduled distributions of cash or stock from the plan. Additionally, delivery of shares of Redwood common stock underlying DSUs and PSUs granted under Redwood’s 2014 Incentive Plan is deferred under the Executive Deferred Compensation Plan. Deferred amounts may be deferred until a date chosen by the participant in the plan at the time of the initial deferral (subject to certain restrictions) or until separation from service, at which time the balance in the participant’s account will be delivered in cash or common stock (as applicable), or will be paid out over a period of up to 15 years, depending upon deferral elections.

Cash amounts deferred under the Executive Deferred Compensation Plan are credited with interest at 120% of the long-term applicable federal rate as published by the IRS, which does not constitute above-market interest under IRS regulations. As an example, for December 2019, 120% of the long-term applicable federal rate was 2.49% per annum. Cash balances deferred under the Executive Deferred Compensation Plan remain available to Redwood for general corporate purposes pending the obligation to deliver the deferred amounts on the deferral date. The ability of participants to elect to receive interest on deferred amounts is one incentive to participate in this Plan, thereby making funds available for use to Redwood.

Redwood also matches 50% of cash compensation deferred by participants in the Executive Deferred Compensation Plan, provided that total matching payments and contributions made by Redwood to participants in the Executive Deferred Compensation Plan and Redwood’s 401(k) plan (discussed below) are limited to 6% of base salary. Participants are fully vested in all prior and all new matching payments after three years of employment. Redwood believes the Executive Deferred Compensation Plan provides a vehicle for executive officers and other participants to plan for retirement and tax planning flexibility.


Employee Stock Purchase Plan
Redwood offers all eligible employees (including NEOs) the opportunity to participate in a tax-qualified Employee Stock Purchase Plan (ESPP). Through payroll deductions, employees can purchase shares of Redwood's common stock at a discount from fair market value on a quarterly basis. The purchase price per share is the lower of (a) 85% of the fair market value per share on the first day of each 12-month offering period (January 1st) or (b) 85% of the fair market value per share on the purchase date (the end of each calendar quarter, March 31st, June 30th, September 30th, and December 31st). An employee is eligible to participate in the ESPP at the beginning of the quarter following 90 consecutive days of employment. Employees are allowed to contribute up to 15% of their cash compensation, subject to a limit of $25,000 per offering period, which is equivalent to a calendar year.

59



401(k) Plan and Other Matching Contributions
During 2019, Redwood offered a tax-qualified 401(k) plan to all eligible employees (including NEOs) for retirement savings. Under this plan, during 2019, NEOs were allowed to defer and invest up to 100% of their cash earnings, subject to the maximum 401(k) contribution amount (which, in 2019, was $19,000 for those under 50 years of age and $25,000 for those 50 years of age or older). Contributions can be invested in a diversified selection of mutual funds.

In order to encourage participation and to provide a retirement planning benefit to employees, during 2019 Redwood also generally provided a matching contribution of up to 50% of employees’ 401(k) plan contributions, provided that matching contributions to the 401(k) plan were limited to the lesser of 4% of an employee’s cash compensation or, in 2019, $9,500. Employees who are provided with matching contributions are fully vested in all prior and all new matching contributions after three years of employment.

As noted above, for 2019 total matching payments made to participants in the Executive Deferred Compensation Plan (including deferred compensation matching plus matches in the 401(k) plan) were limited to 6% of base salary.


Other Compensation and Benefits
During 2019, Redwood also provided employees (including NEOs) with certain other health and welfare benefits, generally consisting of: medical, dental, vision, disability, and life insurance, a disability income continuation program (which can supplement disability insurance payments), an employee assistance program (which is a standard package of assistance benefits such as counseling and legal and financial consultation and referral services), a fitness-related activity reimbursement program, and a flexible spending account program. The provision of these types of benefits is important in attracting and retaining employees. These plans were available in 2019 to all eligible employees on a substantially similar basis. During 2019, Redwood paid a portion of all employees’ monthly premium for medical and dental coverage, as well as for basic long-term disability and life insurance provided through Redwood plans.


Severance and Change of Control Arrangements
For NEOs and other Redwood employees, the terms of outstanding equity award agreements include a "change of control" double-trigger protection that provide for the acceleration of outstanding awards in the event a termination without “cause” or a termination of employment with “good reason", following a "change of control".

In addition, certain of Redwood’s NEOs have entered into employment agreements with Redwood, which provide for severance payments and vesting of equity-related awards in the event Redwood terminates the executive’s employment without “cause” or the executive terminates his employment for “good reason.” These employment agreements also provide for payments and vesting of equity-related awards in the event of the executive’s death or disability.

In the event of a “change of control,” these employment agreements provide for vesting of equity-related awards only after a “double trigger” - meaning that no awards would vest unless the executive is terminated without “cause” or terminates his employment with “good reason", following such a "change of control".

In addition, under these employment agreements if the surviving or acquiring corporation does not assume outstanding equity-related awards or substitute equivalent awards, then the equity-related awards will generally vest in full. These agreements were entered into in order to attract and retain these executives in the competitive marketplace for executive talent.


60



For all NEOs, under the equity award agreements governing outstanding PSUs, in the event of a "change of control," the per share price paid in connection with the change of control will be used to calculate total stockholder return when determining the vesting of outstanding PSU awards, and total stockholder return performance goals, when applicable, will be annualized to reflect the number of days completed in the performance-measurement period (from the first day of the period through the closing date of the change of control).

The various levels of post-termination benefits for each of the NEOs were determined by the Committee to be appropriate based on that executive’s duties and responsibilities with Redwood and were the result of arm’s-length negotiations with these individuals. The different levels were also determined to be appropriate and reasonable when generally compared to post-termination benefits provided by Redwood’s peers to executives with similar titles and similar levels of responsibility. The levels of benefit were also intended to take into account the expected length of time and difficulty the executive may experience in trying to secure new employment. The amount of the severance is balanced against Redwood’s need to be responsible to its stockholders and also takes into account the potential impact the severance payments may have on other potential parties to a change in control transaction.

The terms of the executive severance and change of control arrangements that were in place during 2019 are described in more detail below under “Potential Payments upon Termination or Change of Control.”


Redwood does not provide for excise tax gross-ups for change-in-control severance payments.  Redwood does not have any agreements in place with any executive (or any other employee) that provide for an excise tax gross-up for a change-in-control severance payment, whether imposed under Section 280G of the Internal Revenue Code of 1986, as amended (the Code) or otherwise. The Committee does not intend to offer any such excise tax gross-up provisions in any future agreements.


61



Section IV - Compensation-Related Policies and Tax Considerations
 
 
 
 
Ø
Mandatory Executive Stock Ownership Requirements
 
 
 
 
Ø
Prohibition on Use of Margin, Pledging, and Hedging in Respect of Redwood Shares
 
 
 
 
Ø
Clawback Policy
 
 
 
 
Ø
Tax Considerations
 
 
 
 
Ø
Accounting Standards

Mandatory Executive Stock Ownership Requirements
As described on pages 9-10 of this Proxy Statement under the heading “Stock Ownership Requirements — Required Stock Ownership by Executive Officers,” the Committee maintains mandatory stock ownership requirements with respect to Redwood’s executive officers, which the Committee believes foster long-term alignment between executives and stockholders. The Committee conducts a review of the executive stock ownership requirements each year.

Mandatory Executive Stock Ownership Requirements
The Chief Executive Officer, the President, and the other executive officers are required to own stock with a value at least equal to (i) six times current salary in the case of the Chief Executive Officer, (ii) three times current salary in the case of the President, and (iii) two times current salary in the case of the other executive officers;
Executive officers are allowed three years to attain the required level of ownership and three years to acquire additional incremental shares if promoted to a position with a higher ownership requirement or when a salary increase results in a higher ownership requirement (if not in compliance at the compliance deadlines, the executive officer is required to retain net after-tax shares delivered as compensation or from the Executive Deferred Compensation Plan until compliance is achieved);
All shares owned outright are counted, including those held in trust for the executive officer and his or her immediate family, as well as vested DSUs and vested shares held pursuant to other employee plans; and
For purposes of determining compliance, the purchase or acquisition price is used as the value of shares held.
As of the date of this Proxy Statement, all of Redwood’s executive officers were in compliance with these requirements either due to ownership of the requisite number of shares or because the time period during which the executive officer is permitted to attain the required level of ownership had not expired.


Prohibition on Use of Margin, Pledging, and Hedging in Respect of Redwood Shares
Under Redwood’s Insider Trading Policy, Redwood’s executive officers, employees and directors may not acquire securities issued by Redwood using borrowed funds, may not use margin in respect of the purchase of securities issued by Redwood, may not use margin accounts to hold Redwood securities, may not pledge or otherwise use as collateral securities issued by Redwood, and may not engage in hedging or other transactions with respect to their ownership of securities issued by Redwood (including short sales or transactions in puts, calls, or other derivative securities). The Committee believes these proscribed activities would be inconsistent with the purposes and intent of Redwood's stock ownership requirements.


62



Clawback Policy
Redwood continues to maintain a “clawback” policy with respect to bonus, equity, and other incentive payments made to any executive officer whose fraud or misconduct resulted in a financial restatement. Pursuant to this policy, in the event of a significant restatement of Redwood’s financial results due to fraud or misconduct, the Board of Directors of Redwood will review all bonus and incentive compensation payments made on the basis of Redwood having met or exceeded specific performance targets during the period affected by the restatement. If any of the payments would have been lower if determined using the restated results, the Board of Directors will, in its discretion and to the extent permitted by law, seek to recoup from the executive officers whose fraud or misconduct materially contributed to the restatement the excess value or benefit of the prior payments made to those executive officers.

Tax Considerations
In general, Section 162(m) places a $1,000,000 annual limit on a publicly-held corporation’s tax deduction for compensation paid to certain executive officers. Prior to the enactment of the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Cut"), this limit did not apply to compensation that satisfied the applicable requirements for the "qualified performance-based compensation" exception to the Section 162(m) deductibility limitation. However, under the 2017 Tax Act, effective for tax years commencing after December 31, 2017, the performance-based compensation exception, and our ability to rely on this exception, were eliminated (other than with respect to grandfathered arrangements in effect on November 2, 2017), and the meaning of “covered employee” generally was expanded.

Redwood has elected to be taxed as a REIT under the Code and generally is not subject to federal income taxes, provided it distributes to stockholders at least 90% of taxable income each year. As a result of Redwood’s tax status as a REIT, the loss of a deduction under Section 162(m) of the Code is not expected to have a material impact on the amount of federal income tax payable by Redwood.

The Committee considers the anticipated tax treatment to Redwood and to executive officers when reviewing executive compensation levels and Redwood’s compensation programs. The deductibility of some types of compensation payments can depend upon the timing of an executive’s vesting or exercise of previously granted rights or termination of employment. Interpretations of and changes in applicable tax laws and regulations, as well as other factors beyond the Committee’s control, also can affect the deductibility of compensation.

While the tax impact of any compensation arrangement is one factor considered by the Committee, that impact is evaluated in light of the Committee’s overall compensation philosophy and objectives. The Committee will consider the deductibility of executive compensation, while retaining the discretion it deems necessary to compensate officers in a manner commensurate with performance and the competitive environment for executive talent.

Accounting Standards
Under GAAP, ASC Topic 718 requires Redwood to calculate the grant date “fair value” of stock-based awards using a variety of assumptions. ASC Topic 718 also requires Redwood to recognize an expense for the fair value of equity-based compensation awards. Grants of deferred stock units, restricted stock, restricted stock units and performance units under equity incentive award plans will be accounted for under ASC Topic 718. The Compensation Committee regularly considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to equity incentive award plans and programs. As accounting standards change, the Committee may revise certain programs to align appropriately the accounting expense of equity awards with Redwood's overall executive compensation philosophy and objectives.


63



Section V - Conclusion
 
 
 
 
Ø
Certain Compensation Determinations Relating to 2020
 
 
 
 
Ø
Compensation Committee Report
Certain Compensation Determinations Relating to 2020
In accordance with its normal practice, at its meeting in December 2019, the Committee made certain decisions relating to the NEOs’ 2020 base salaries and 2020 targets for performance-based annual bonuses, as further described below. The Committee retains the discretion to make adjustments to these decisions prior to the completion of its annual year-end review in December 2020, including in connection with addressing the impacts of the Covid-19 pandemic. In the interim, as noted below, Redwood’s CEO has voluntarily waived continued receipt of the 2020 base salary increase that was provided to him at the end of 2019, effective May 1, 2020, and continuing through the end of the year.
2020 Base Salaries.  In accordance with its above-described policy and practice relating to base salaries (see discussion above on page 47 within this CD&A under the heading “2019 Base Salaries”), in December 2019 the Committee reviewed the base salaries of the current executive officers for 2020. Effective as of January 1, 2020, the following NEOs' base salaries were increased from their 2019 year-end level.
    
 
 
Base Salary
 
 
 
2019
 
2020
 
Mr. Abate,
Chief Executive Officer
 
$
750,000

 
$
800,000

(1) 
Mr. Robinson,
President
 
$
600,000

 
$
700,000

 
Mr. Stone,
Executive Vice President and General Counsel
 
$
400,000

 
$
420,000

 
Mr. Cochrane,
Chief Financial Officer
 
$
375,000

 
$
385,000

 
Mr. Kanouse,
Managing Director - Head of Residential
 
$
475,000

 
$
500,000

 
     ____________________________________
(1)
Effective May 1, 2020, and continuing through 2020, Redwood's CEO has voluntarily waived continued receipt of this base salary increase.

2020 Targets for Performance-Based Annual Bonuses.  In accordance with its above-described policy and practice relating to target annual bonuses (see discussion above on pages 48-52 within this CD&A under the heading “2019 Performance-Based Annual Bonus Compensation”), in December 2019 the Committee established a 2020 target annual bonus for each current executive officer.

64



The table below sets forth the 2020 target annual bonuses for each of the current NEOs.     
Current NEO
 
2020 Base
Salary
 
2020 Target
Annual Bonus
(%)
 
Change from
2019 Target
Annual Bonus Percentage
(%)(1)
 
Total
2020 Target
Annual Bonus
($)
Mr. Abate,
President
 
$
800,000

 
185%
 
6%
 
$
1,480,000

Mr. Robinson,
Executive Vice President
 
$
700,000

 
175%
 
6%
 
$
1,225,000

Mr. Stone,
Executive Vice President and General Counsel
 
$
420,000

 
125%
 
4%
 
$
525,000

Mr. Cochrane,
Chief Financial Officer
 
$
385,000

 
125%
 
 
$
481,250

Mr. Kanouse,
Managing Director - Head of Residential
 
$
500,000

 
140%
 
 
$
700,000

 
(1)
Amounts set forth in the table under “Change from 2019 Target Annual Bonus Percentage (%)” reflect the
increase, if any, in the 2020 Target Annual Bonus (%) from the 2019 Target Annual Bonus (%) in effect for each NEO at the end of 2019.

2020 Maximum Total Annual Bonuses. The Committee also determined that the maximum total annual bonus for 2020 will continue to be $5 million for each of the CEO and President, and $3 million for each of the other current executive officers.

Form of Payment of 2020 Performance-Based Annual Bonuses. As in prior years, for 2020, the Committee determined that if the performance-based annual bonus earned by an executive officer exceeds two times the target annual bonus designated for that executive officer, the excess portion will not be paid fully in cash, but will instead be paid 50% in cash and 50% in the form of vested DSUs with a mandatory three-year holding period.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis and Executive Summary of Compensation Discussion and Analysis included in this Proxy Statement. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis and Executive Summary of Compensation Discussion and Analysis be included in this Proxy Statement.

Compensation Committee:
Georganne C. Proctor, Chair
Richard D. Baum
Debora D. Horvath
Jeffrey T. Pero



65


Executive Compensation Tables
Summary Compensation

The following table includes information concerning compensation earned by the NEOs for the years ended December 31, 2019, 2018, and 2017, as applicable. Titles shown in the table are those held by the NEOs on December 31, 2019.
Name and Principal Position
 
Year
 
Salary
 
Bonus
 
Stock
Awards (1)
 
Non-Equity
Incentive
Plan Compensation(2)
 
All Other
Compensation(3)
 
Total
Christopher J. Abate,
Chief Executive Officer
 
2019
 
$
750,000

 

 
$
3,749,992

 
$
2,253,335

 
$
46,000

 
$
6,799,327

2018
 
$
645,833

 

 
$
2,999,963

 
$
1,267,778

 
$
37,000

 
$
4,950,574

2017
 
$
550,000

 

 
$
1,502,057

 
$
1,652,076

 
$
33,000

 
$
3,737,133

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dashiell I. Robinson,
President
 
2019
 
$
600,000

 

 
$
3,499,982

 
$
1,761,533

 
$
36,000

 
$
5,897,515

 
2018
 
$
515,278

 

 
$
2,199,973

 
$
866,996

 
$
19,625

 
$
3,601,872

 
2017
 
$
128,846

 
$
1,000,000

 
$
2,499,377

 

 
$
1,255,250

 
$
4,883,473

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Andrew P. Stone,
Executive Vice President and General Counsel
 
2019
 
$
400,000

 

 
$
1,049,997

 
$
758,077

 
$
25,000

 
$
2,233,074

 
2018
 
$
400,000

 

 
$
949,993

 
$
515,991

 
$
25,000

 
$
1,890,984

 
2017
 
$
400,000

 

 
$
851,093

 
$
881,107

 
$
24,000

 
$
2,156,200

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collin L. Cochrane,
Chief Financial Officer
 
2019
 
$
375,000

 

 
$
849,986

 
$
715,159

 
$
22,500

 
$
1,962,645

 
2018
 
$
350,000

 

 
$
799,980

 
$
407,800

 
$
21,000

 
$
1,578,780

 
2017