DEF 14A 1 d112997ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.     )

 

Filed by the Registrant

 

Filed by a Party other than the Registrant

 

Check the appropriate box:

 

Preliminary Proxy Statement

 

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

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material under Rule 14a-12

 

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

 

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

 

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

 

(1)

  

Title of each class of securities to which transaction applies:

 

    

 

 

(2)

  

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(3)

  

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

 

    

 

 

(4)

  

Proposed maximum aggregate value of transaction:

 

    

 

 

(5)

  

Total fee paid:

 

    

 

 

Fee paid previously with preliminary materials.

 

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

 

(1)

  

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(2)

  

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(3)

  

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Date Filed:

 

    

 

 

 


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LOGO

 

   PennyMac Financial Services, Inc.

3043 Townsgate Road

Westlake Village, California 91361

April 14, 2021

Dear Stockholder:

You are cordially invited to attend the 2021 Annual Meeting of Stockholders, or the Annual Meeting, of PennyMac Financial Services, Inc. to be held on Thursday, June 3, 2021, at 11:00 a.m. Pacific Time. Due to the ongoing COVID-19 pandemic, the 2021 Annual Meeting will be conducted online via live webcast at www.virtualshareholdermeeting.com/PFSI2021.

The Notice of 2021 Annual Meeting of Stockholders and Proxy Statement are attached to this letter and contain information about the matters on which you will be asked to vote at the Annual Meeting. We will transact no other business at the Annual Meeting, except for business properly brought before the Annual Meeting or any postponement or adjournment thereof by our Board of Directors. Only our stockholders of record at the close of business on April 6, 2021, the record date, are entitled to vote at the Annual Meeting.

Your vote is very important. Please carefully read the Notice of 2021 Annual Meeting of Stockholders and Proxy Statement so that you will know the matters on which we plan to vote at the Annual Meeting, and then vote your shares by proxy by mail, by Internet or by telephone as soon as possible to make sure that your shares are represented at the Annual Meeting.

ONLINE ANNUAL MEETING: To participate in the online Annual Meeting, you will need to log-in to www.virtualshareholdermeeting.com/PFSI2021 using the 16-digit control number found on the proxy card, voting instruction form, notice of internet availability of proxy materials or email, as applicable, previously sent or made available to stockholders entitled to vote at the Annual Meeting. Please read “INFORMATION CONCERNING VOTING AND SOLICITATION—Who can attend the Annual Meeting?” in the accompanying Proxy Statement. If it is determined the Annual Meeting will be held at a different time or in a different location or format (i.e., an in-person or hybrid meeting), an announcement of any such updates will be provided by means of a press release, which will be posted on our website (www.pennymacfinancial.com) and filed with SEC via its EDGAR system.

On behalf of our Board of Directors, we look forward to your participation in our upcoming online Annual Meeting.

Sincerely,

 

LOGO

DAVID A. SPECTOR

Chairman and Chief Executive Officer

 


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LOGO

  

PennyMac Financial Services, Inc.

3043 Townsgate Road

Westlake Village, California 91361

Notice of 2021 Annual Meeting of Stockholders

 

 

 

Date and Time:

  

Thursday, June 3, 2021 at 11:00 a.m. Pacific Time

Location:

  

Online via live webcast at www.virtualshareholdermeeting.com/PFSI2021

Record Date:

  

April 6, 2021. Only stockholders of record at the close of business on the record date are entitled to receive notice of, and vote at, the 2021 Annual Meeting of Stockholders, or Annual Meeting, and any continuation, postponement or adjournment thereof.

Mailing Date:

  

We intend to mail the Notice Regarding the Availability of Proxy Materials, or the Proxy Statement and proxy card, as applicable, on or about April 14, 2021 to our stockholders of record on the record date.

Items of Business:    

  

     To elect the eleven (11) director nominees identified in the enclosed Proxy Statement to serve on our Board of Directors, each for a one-year term expiring at the 2022 annual meeting of stockholders;

  

     To ratify the appointment of our independent registered public accounting firm for the fiscal year ending December 31, 2021;

  

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

  

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

Attendance:

  

To be admitted to the Annual Meeting virtually, you will need to log-in to www.virtualshareholdermeeting.com/ PFSI2021 using the 16-digit control number found on the proxy card, voting instruction form, notice of internet availability of proxy materials or email, as applicable, previously sent or made available to stockholders entitled to vote at the Annual Meeting. Please read “INFORMATION CONCERNING VOTING AND SOLICITATION—Who can attend the Annual Meeting?” in the accompanying Proxy Statement.

Voting:

  

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

By Order of the Board of Directors,

 

LOGO

DEREK W. STARK

Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 3, 2021:

This Notice of 2021 Annual Meeting of Stockholders, Proxy Statement and 2020 Annual Report to Stockholders, which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, are available at www.proxyvote.com.


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    TABLE OF CONTENTS  

 

Table of Contents

 

PROXY STATEMENT SUMMARY

     1  

CORPORATE GOVERNANCE

     6  

 

Our Focus on Corporate Sustainability and ESG

     14  

 

PROPOSAL I — ELECTION OF DIRECTORS

     17  

 

Director Nominees

     18  

Non-Management Director Compensation

     23  

2020 Director Compensation Table

     24  

Non-Management Director Stock Ownership Guidelines

     25  

 

AUDIT MATTERS

     26  

 

Report of the Audit Committee

     26  

Relationship with Independent Registered Public Accounting Firm

     27  

Fees to Registered Public Accounting Firm for 2020 and 2019

     27  

Pre-Approval Policies and Procedures

     27  

 

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

     28  

 

SECURITY OWNERSHIP INFORMATION

     29  

 

Security Ownership of Executive Officers and Directors

     29  

Security Ownership of Other Beneficial Owners

     30  

 

EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION

     31  

 

Our Executive Officers

     31  

Report of the Compensation Committee

     33  

Compensation Discussion and Analysis

     34  

Executive Compensation Decision Making Process

     46  

Peer Group and Benchmarking

     47  

Compensation Tables

     52  

CEO Pay Ratio

     61  

 

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

     62  

 

Supporting Statement

     62  

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     63  

 

ANNUAL REPORT ON FORM 10-K

     73  

 

OTHER MATTERS

     73  

 

INFORMATION CONCERNING VOTING AND SOLICITATION

     74  

 

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    PROXY STATEMENT SUMMARY  

 

Proxy Statement Summary

This summary contains highlights about our Board of Directors and the upcoming 2021 Annual Meeting of Stockholders, or Annual Meeting. This summary does not contain all of the information that you should consider in advance of the Annual Meeting and we encourage you to read the entire Proxy Statement before voting.

2021 Annual Meeting of Stockholders

 

 

 

 

  Date and Time:

 

  

 

Thursday, June 3, 2021, at 11:00 a.m. Pacific Time

 

   

 

  Location:

 

  

 

Online via live webcast at www.virtualshareholdermeeting.com/PFSI2021

 

 

 

  Record Date:

 

 

  

 

April 6, 2021

 

 

 

  Mail Date:

 

  

 

April 14, 2021

 

   

Voting Matters and Board Recommendations

 

 

 

  Matter

 

      

    Our Board Vote Recommendation    

 

 

Proposal I:

 

  

 

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

 

 

 

FOR each Director Nominee
identified in this Proxy Statement

 

 

Proposal II:

 

  

 

Ratification of the appointment of our independent registered public accounting firm

 

 

 

FOR

 

 

Proposal III:

 

  

 

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

 

 

 

FOR

 

Director Nominees

 

  Director Nominees    Age     

Director

Since

    

Principal Occupation /

Key Experience

  

Committee

Membership

 

David A. Spector

 

  

 

 

 

 

58

 

 

 

 

  

 

 

 

 

2012

 

 

 

 

  

 

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

 

  

 

None

 

 

Anne D. McCallion

 

    

 

66

 

 

 

    

 

2018

 

 

 

  

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

 

  

Finance

 

Risk

 

 

James K. Hunt

 

  

 

 

 

 

69

 

 

 

 

    

 

2013

 

 

 

  

 

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

 

  

 

Nominating and Corporate
Governance

 

Compensation

 

 

Jonathon S. Jacobson

 

  

 

 

 

 

59

 

 

 

 

  

 

 

 

 

2021

 

 

 

 

  

 

Founder of HighSage Ventures LLC and Former Co-Founder of Highfields Capital Management L.P.

 

  

Nominating and Corporate
Governance

 

Finance

 

 

Patrick Kinsella †

 

  

 

 

 

 

67

 

 

 

 

  

 

 

 

 

2014

 

 

 

 

  

 

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

 

  

Audit

 

Related Party Matters

 

Risk

 

† Audit Committee Financial Expert

* Independent Lead Director

 

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    PROXY STATEMENT SUMMARY  

 

  Director Nominees   

 

Age

  

 

Director
Since

  

 

Principal Occupation /
Key Experience

 

 

 

Committee

 

Membership

Joseph Mazzella

 

  

 

68

 

   2012   

 

Retired Managing Director and General Counsel of Highfields Capital Management L.P.

 

  Nominating and Corporate
Governance

 

Related Party Matters

 

 

Farhad Nanji

  

 

42

 

  

 

2012

 

  

 

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

 

  Compensation

 

Jeffrey A. Perlowitz*

  

 

64

 

  

 

2019

 

  

 

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

 

  Compensation

 

Finance

 

Risk

 

Lisa M. Shalett

  

 

54

 

  

 

2020

 

  

 

Former Goldman Sachs Partner and Former Managing Partner of Brookfield Asset Management

 

  Audit

 

Nominating and Corporate
Governance

 

Theodore W. Tozer

  

 

64

 

   2017   

 

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

 

  Audit

 

Related Party Matters

 

Risk

 

Emily Youssouf

  

 

69

 

  

 

2013

 

  

 

Clinical Professor at NYU Schack Institute of Real Estate

 

  Audit

 

Finance

 

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

 

 

 

LOGO

 

LOGO

 

LOGO

 

LOGO

 

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    PROXY STATEMENT SUMMARY  

 

LOGO

Corporate Governance Highlights

 

 

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

 

 

 

  

 

 

 

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

 

     

 

    

 

 

 

Independent Lead Director. The independent directors of our Board elected Jeffrey A. Perlowitz as our independent lead director for a one year term that expires in February 2022.

 

 

  

 

 

 

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

 

   

 

    

 

 

 

Board Refreshment. We have robust processes to identify, evaluate and select qualified director candidates and we regularly assess the size and composition of the Board. We added Lisa M. Shalett and Jonathon S. Jacobson as new independent directors since our 2020 Annual Meeting.

 

 

  

 

 

 

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

 

   

 

    

 

 

 

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

 

 

  

 

 

 

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

 

   

 

    

 

 

 

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

 

 

  

 

 

 

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

 

     

 

    

 

 

 

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

 

 

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    PROXY STATEMENT SUMMARY  

 

Financial Highlights(1)

 

 

 

LOGO    LOGO
LOGO    LOGO

 

 

LOGO

 

(1)

For complete information regarding our Fiscal 2020 performance, stockholders should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and accompanying notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the Securities and Exchange Commission, or the SEC, on February 25, 2021 and is being made available to stockholders with this Proxy Statement as a part of our 2020 Annual Report to Stockholders.

 

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    PROXY STATEMENT SUMMARY  

 

COVID-19 Pandemic

 

The Company devoted substantial attention in fiscal 2020 to responding to the human and business impact of the COVID-19 pandemic, while expanding our workforce by over 3,000 new employees and maintaining our operational focus resulting in record financial results. Throughout the COVID-19 pandemic, the Company acted to support its employees, customers and communities during these challenging times, responded to the associated business impact and developed protocols both for determining whether our businesses could remain open and for responsible operations when they could.

Our COVID-19 Response included:

 

   

Enhanced health and safety measures for our workforce

   

Successfully transitioned our workforce to work from home (currently 90% of workforce working from home)

   

Welcomed over 3,000 new employees, most of whom are working from home

   

Wellness and family resources for our employees via our COVID-19 resource center

   

Supported our communities with community giving

Executive Compensation Highlights

 

 

Our compensation governance best practices are summarized as follows:

 

 

What We Do

 

     

 

What We Don’t Do

 

 

 

  

 

 

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

 

   

 

û  

 

 

 

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

 

 

 

  

 

 

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

 

   

 

û  

 

 

 

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

 

 

 

  

 

 

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

 

   

 

û  

 

 

 

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

 

 

 

  

 

 

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

 

   

 

û  

 

 

 

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

 

 

 

  

 

 

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

 

   

 

û  

 

 

 

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

 

 

 

  

 

 

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

 

   

 

û  

 

 

 

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

 

 

 

  

 

 

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

   

 

û  

 

 

 

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

 

 

 

  

 

 

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

 

   

 

û  

 

 

 

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

 

 

 

  

 

 

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

 

     

 

û  

 

 

 

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

 

 

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    CORPORATE GOVERNANCE  

 

Corporate Governance

Director Qualification, Board Refreshment and Selection Criteria

 

 

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

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

Pursuant to a separate stockholder agreement with HC Partners LLC, or HCP, HCP has the right to nominate up to two individuals for election to our Board, depending on the percentage of the voting power of our outstanding shares of common stock that it holds, and we are obligated to use our best efforts to cause the election of those nominees. Based on current levels of ownership, HCP has the right to nominate two directors to the Board. HCP has elected to nominate Joseph Mazzella and Jonathon S. Jacobson, for election to our Board.

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

Candidates may come to the attention of the Nominating and Corporate Governance Committee through current members of our Board, professional search firms or other persons. The Nominating and Corporate Governance Committee also will consider recommendations for nominees properly submitted by our stockholders. These recommendations should be submitted in writing to our Secretary at our principal executive offices located at 3043 Townsgate Road, Westlake Village, California 91361. If any materials are provided by a stockholder in connection with a recommendation for a director nominee, such materials are forwarded to the Nominating and Corporate Governance Committee. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by the Nominating and Corporate Governance Committee, in the same manner as other recommendations, at its next regularly scheduled or special meeting. During 2020, the Nominating and Corporate Governance Committee retained an independent third party to assist in identifying appropriate director candidates for our Board. Ms. Shalett was identified and recommended to the Nominating and Corporate Governance Committee by our late Chairman, our current Chairman and Chief Executive Officer and a stockholder. Mr. Jacobson was identified and recommended to the Nominating and Corporate Governance Committee by HCP and our current Chairman and Chief Executive Officer.

 

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    CORPORATE GOVERNANCE  

 

Independence of Our Directors

 

 

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

As a result of this review, our Board affirmatively determined that 82% of our directors are independent under the NYSE rules. Our independent directors are James K. Hunt, Jonathon S. Jacobson, Patrick Kinsella, Joseph Mazzella, Farhad Nanji, Jeffrey A. Perlowitz, Lisa M. Shalett, Theodore W. Tozer and Emily Youssouf based upon the fact that none of these directors have any material relationships with us other than as directors and holders of our common stock.

Board of Directors Leadership and Independent Lead Director

 

 

Our Chairman and the independent lead director provide leadership to and work with our Board to define its structure and activities in the fulfillment of its responsibilities. The Board determined in February 2021 that the position of Chairman of the Board, previously held by Mr. Kurland until his death in January 2021, should be held by David A. Spector. Mr. Spector has served as a key executive since our founding in 2008 and throughout our growth as one of the largest mortgage lenders in the country with over 6,000 employees. The Board believes Mr. Spector’s past experience has made him uniquely positioned to lead and oversee the Board and identify and execute our future strategic initiatives. In addition, Mr. Spector has proven himself capable of leading Board discussions on new initiatives and strategic priorities, facilitating internal Board communication and ensuring proper Board oversight of key issues.

This determination is based, in part, on our belief that independent directors and management have different perspectives and roles in strategy development. Our independent directors bring experience, oversight and expertise from outside our Company and industry, while the Chief Executive Officer brings company-specific experience and expertise. We believe our Chief Executive Officer is thus better situated to serve as Chairman of the Board because he is able to utilize the in-depth focus and perspective gained in running our Company to effectively and efficiently lead our Board. As the director most familiar with our business and industry, he is capable of identifying new initiatives and businesses, strategic priorities and other critical and/or topical agenda items for discussion by our Board and then leading the discussion to ensure our Board’s proper oversight of these issues. Our Board believes that the combined role of Chairman of the Board and Chief Executive Officer promotes strategy development and execution, and facilitates information flow between management and our Board, all of which are essential to effective governance.

This determination is also based on what we consider to be a strong governance structure already in place, including the appointment of an influential independent lead director with a strong voice. The independent lead director works with our Chairman of the Board and other directors to provide informed, independent oversight of our management and affairs. Among other things, the independent lead director reviews and provides input on Board meeting agendas and materials, coordinates with committee chairs to ensure the committees are fulfilling the responsibilities set forth in their respective charters, serves as the principal liaison between our Chairman of the Board and the independent directors, and chairs an executive session of the independent directors at each regularly scheduled Board meeting. Our Board has appointed Mr. Perlowitz as its independent lead director for a one year term expiring in February 2022.

Succession Planning

 

 

Our Board oversees management’s succession plan for the Chairman and Chief Executive Officer and key positions at the executive officer level. Our Board annually reviews succession plans for the Chairman and Chief Executive Officer and executive management. In addition, the Chairman and Chief Executive Officer annually provides his assessment to our Board of executive leaders and their potential to succeed at key executive management positions.

 

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    CORPORATE GOVERNANCE  

 

The Role of the Board in Risk Oversight

 

 

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

 

 

Committee

 

  

 

Primary Risk Oversight Responsibility

 

Audit

  

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

Compensation

  

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

Finance

  

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

Nominating and Corporate Governance

  

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

Related Party Matters

  

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

Risk

  

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

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

 

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    CORPORATE GOVERNANCE  

 

Committees of the Board of Directors

 

 

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

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

 

  Directors

 

  

Audit

 

  

Compensation

 

  

Finance

 

  

 

Nominating
and
Corporate
Governance

 

  

 

Related
Party
Matters

 

  

  Risk  

 

 

  Non-Management Directors

 

                 

 

  James K. Hunt

 

     

 

X

 

     

 

CC

 

     

 

  Patrick Kinsella

 

  

 

CC

 

           

 

X

 

  

 

X

 

 

  Jonathon S. Jacobson

 

        

 

X

 

  

 

X

 

     

 

  Joseph Mazzella

 

           

 

X

 

  

 

CC

 

  

 

  Anne D. McCallion

 

        

 

X

 

        

 

X

 

 

  Farhad Nanji

 

     

 

CC

 

           

 

  Jeffrey A. Perlowitz*

 

     

 

X

 

  

 

X

 

        

 

X

 

 

  Lisa M. Shalett

 

  

 

X

 

        

 

X

 

     

 

  Theodore W. Tozer

 

  

 

X

 

           

 

X

 

  

 

CC

 

 

  Emily Youssouf

 

  

 

X

 

     

 

CC

 

        

 

  Management Directors

 

                 

 

  David A. Spector

 

                             

†     – Chairman

*     – Independent Lead Director

CC – Committee Chair

 

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    CORPORATE GOVERNANCE  

 

The primary committee responsibilities, current committee membership and number of meetings held by each such committee of our Board during 2020 are summarized below:

 

     

 

Audit Committee

 

     

 

Primary Responsibilities

 

 

Members:

   

 

The Audit Committee assists our Board in overseeing:

 

  our accounting and financial reporting processes;

 

  the integrity and audits of our financial statements;

 

  our internal control function;

 

  our compliance with related legal and regulatory requirements;

 

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

 

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

 

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

 

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

 

Patrick Kinsella, Chair

Lisa M. Shalett

Theodore W. Tozer

Emily Youssouf

 

 

Meetings in 2020: 8

 

 

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

 

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

 

   

 

     

 

Compensation Committee

 

      

 

Primary Responsibilities

 

 

Members:

    

 

The principal functions of the Compensation Committee are to:

 

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

 

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

 

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

 

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

 

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

 

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

 

  recommend to our Board the compensation for our non-management directors;

 

  collaborate with the Board’s Nominating and Corporate Governance Committee on succession plans; and

 

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

 

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

 

Farhad Nanji, Chair

James K. Hunt

Jeffrey A. Perlowitz

 

 

Meetings in 2020: 6

 

 

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

 

 

   

 

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    CORPORATE GOVERNANCE  

 

     

 

Finance Committee

 

     

 

Primary Responsibilities

 

 

Members:

   

 

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

 

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

 

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

 

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

 

  monitor our capital budget; and

 

  review our policies and procedures on derivatives transactions.

 

Emily Youssouf, Chair

Jonathon S. Jacobson

Anne D. McCallion

Jeffrey A. Perlowitz

 

 

Meetings in 2020: 5

 

 

    

    

    

    

 

 

   

 

     

 

Nominating and Corporate
Governance Committee

 

     

 

Primary Responsibilities

 

 

Members:

   

 

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

 

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

 

  review periodically with the Board and Compensation Committee the succession plans relating to the Chief Executive Officer and the Company’s other executive officers;

 

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

 

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

 

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

 

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

 

  regularly oversee our environmental, social and governance criteria and policies, practices and initiatives regarding corporate sustainability.

 

James K. Hunt, Chair

Jonathon S. Jacobson

Joseph Mazzella

Lisa M. Shalett

 

 

Meetings in 2020: 4

 

 

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

   

 

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    CORPORATE GOVERNANCE  

 

     

 

Related Party Matters Committee

 

     

 

Primary Responsibilities

 

 

Members:

   

 

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

 

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

 

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

 

  oversee and administer all such policies; and

 

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

 

Joseph Mazzella, Chair

Patrick Kinsella

Theodore W. Tozer

 

 

Meetings in 2020: 4

 

 

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

 

 

   

 

     

 

Risk Committee

 

     

 

Primary Responsibilities

 

 

Members:

   

 

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

 

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

 

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

 

  reviewing annually our enterprise risk management policy;

 

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

 

  directing management to evaluate the effectiveness of our risk management.

 

Theodore W. Tozer, Chair

Patrick Kinsella

Anne D. McCallion

Jeffrey A. Perlowitz

 

 

Meetings in 2020: 4

 

 

    

    

    

    

 

 

   

 

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    CORPORATE GOVERNANCE  

 

Board of Directors and Committee Meetings

 

During Fiscal 2020, our full Board held 25 meetings, nine of which related to the ongoing COVID-19 pandemic. All directors are expected to make every effort to attend all meetings of the Board and meetings of the committees of which they are members. Each of our incumbent directors attended at least 75% of the aggregate number of meetings held in Fiscal 2020 for the period during which such director served with respect to meetings of our Board and each committee on which such director served.

Executive Sessions of the Independent Directors

 

Our Corporate Governance Guidelines require that our Board hold at least four regularly scheduled meetings each year and that our independent directors meet in executive session without management on a regularly scheduled basis. These executive sessions, which are designed to promote unfettered discussions among our independent directors, are presided over by the independent lead director.

Attendance by Members of our Board of Directors at the 2020 Annual Meeting of Stockholders

 

We expect each member of the Board to attend our annual meetings of stockholders except for absences due to causes beyond the reasonable control of the director. Each incumbent director serving during the 2020 annual meeting of stockholders attended the meeting.

Board Evaluations

 

The charters of each of the Audit Committee, Compensation Committee, Finance Committee, Nominating and Corporate Governance Committee, Related Party Matters Committee and Risk Committee require an annual performance evaluation. The Nominating and Corporate Governance Committee oversees the annual board assessment process and the implementation of the annual committee assessments. The Nominating and Corporate Governance Committee typically engages an external evaluator to facilitate the board and committee assessment process. The key areas of focus for the evaluation are Board operations, Board accountability and committee performance. The results of the evaluation are reviewed with the Nominating and Corporate Governance Committee and the full Board. Below is an example of a typical external evaluator led board evaluation.

 

         

Commencement

 

 

Evaluation

 

 

Analysis

 

 

Findings

 

 

Follow-Up

 

 

The Nominating and Corporate Governance Chair engages an outside law firm and they jointly develop a comprehensive questionnaire to serve as the basis for the interview with each director.

 

 

Questionnaires are distributed and the outside law firm interviews each director, soliciting feedback on the effectiveness of the Board and the directors individually including on board size, compositions, board and committee structure and overall performance.

 

 

 

The outside law firm synthesizes the interview discussions and prepares a summary of findings and themes for the Nominating and Corporate Governance Committee, working with the Chair.

 

 

The outside law firm and Chair present their findings and themes to the Nominating and Corporate Governance Committee, which discuss the findings. The Nominating and Corporate Governance Committee Chair then present the findings to the Board.

 

 

 

Results requiring additional considerations are addressed at subsequent meetings and reported back to the Board, where appropriate.

Codes of Business Conduct and Ethics

 

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

In addition, we have adopted a Code of Ethics for the Chairman, Chief Executive Officer and Senior Financial Officers, which sets forth specific policies to guide these individuals in the performance of their duties. The Code of Business Conduct and Ethics and the Code of Ethics for the Chairman, Chief Executive Officer and Senior Financial Officers are available on our website at www.ir.pennymacfinancial.com. Our directors, officers and employees are also encouraged to anonymously report suspected violations of the Code of Business Conduct and Ethics through various means, including a toll-free hotline available 24 hour, 7 days a week.

 

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    CORPORATE GOVERNANCE  

 

Corporate Governance Guidelines

 

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

Our Focus on Corporate Sustainability and ESG

 

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

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

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

Corporate Sustainability and ESG Governance. Our Nominating and Corporate Governance Committee has specific oversight responsibility relating to our corporate sustainability and ESG practices, including environmental stewardship, human capital management (including diversity and inclusion, talent management and employee engagement), community involvement and corporate governance, and, as appropriate, will make recommendations to our full Board. In addition, our Compensation Committee has oversight of talent management and our compensation programs and our Risk Committee has oversight of our enterprise risk management framework. Our Board has established a set of principles, guidelines and practices that support sustainable financial performance and long-term value creation for our stockholders.

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

Board Diversity. Currently, three women serve on our Board, representing 27% of our total Board members. In addition, we have a number of directors who represent other diverse backgrounds and experiences including one director of Asian heritage. Our Board believes that these sorts of diversity factors are essential in promoting our long-term sustainable growth. Our Board maintains a policy regarding the evaluation of director candidates which states that the Board in its selection of director candidates will consider the overall Board balance of diversity of viewpoints, backgrounds and experiences. Our Board has also established director selection criteria which provides that the Board in its selection of director candidates will consider factors that contribute to Board diversity in the broadest sense, including gender, ethnicity, geography, education, and personal and professional experiences.

 

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    CORPORATE GOVERNANCE  

 

Our Workforce Diversity

 

 

LOGO

Workforce Diversity and Inclusion. We believe that building a diverse and inclusive, high-performing workforce where our employees bring varied perspectives and experiences to work every day creates a positive influence in our workplace, community and business operations. At the end of Fiscal 2020, our workforce was 53.3% female and 46.7% male, and the ethnicity of our workforce was 43.7% White, 23.4% Hispanic or Latino, 16.8% Black and African American, 10.3% Asian and 5.8% other. Our Board of Directors, our Nominating and Corporate Governance Committee and our Risk Committee provide regular oversight on our corporate sustainability, diversity and inclusion programs and initiatives. During 2020, we established leadership goals and created customized initiatives that focused on our continued effort to increase the number of women and underrepresented minorities in management positions throughout our Company and its business divisions. As part of our efforts to help foster a more inclusive workplace for all, we established the wEMRG (Women Empowering Mentorships, Relationships, and Growth) program to emphasize career growth, networking, and learning opportunities for women at the management level. We also established the vEMRG (Veterans Engaging Mentorships, Relationships, and Growth) program to further our efforts to hire, support, and create a more inclusive culture for our community of veterans and military families. We also foster a more inclusive culture through a variety of other diversity and inclusion initiatives, including corporate training, special events, community outreach and corporate philanthropy.

Talent Management and Employee Wellbeing. We believe in attracting, developing and engaging the best talent, while providing a supportive work environment that prioritizes the financial, physical and emotional well-being and the safety of our employees. We are committed to ensuring that all employees have access to career advancement opportunities and recognize the importance of providing development networks and relationships that help foster continued growth and learning. Employees receive regular training to help further enhance their career development objectives and we also actively manage an enterprise-wide mentoring program. Our compensation programs are designed to motivate and reward employees who possess the necessary skills to support our business strategy and create long-term value for our stockholders. Employee compensation may include base salary, annual cash incentives, and long-term equity incentives, as well as life and health insurance and 401(k) plan matching contributions. We offer a quality and comprehensive selection of health and welfare benefits to eligible employees and have partnered with an external vendor to establish a comprehensive, fully integrated wellness program designed to enhance the productivity of our employees. Finally, we have a dedicated team of employees who manage and support programs and initiatives that address a number of common workplace safety, health and security concerns across the organization.

Community Involvement. We have a corporate philanthropy program that is governed by a philosophy of giving that prioritizes the support of causes and issues that are important in our local communities, and drives a culture of employee engagement and collaboration throughout our organization. We are committed to empowering our employees to be a positive influence in the communities where we live and serve, and believe that this commitment supports our efforts to attract and engage employees and improve retention. During the 2020 fiscal year, we established the PennyMac Corporate Giving Fund to support several local and national charitable organizations whose missions align with our core values, strategic vision and/or philanthropic focus areas.

 

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    CORPORATE GOVERNANCE  

 

Communications with our Board of Directors

 

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

[Specified Addressee]

c/o PennyMac Financial Services, Inc.

3043 Townsgate Road

Westlake Village, California 91361

Email: PFSI_IR@pnmac.com

Attention: Investor Relations

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

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

PROPOSAL I – ELECTION OF DIRECTORS

We have eleven directors. Mr. Kurland, our founder and non-executive Chairman died on January 23, 2021 and Mr. Botein resigned from the Board on August 6, 2020. We are grateful to both Mr. Kurland and Mr. Botein for their past services to the Company. The Board has nominated David A. Spector, James K. Hunt, Jonathon S. Jacobson, Patrick Kinsella, Joseph Mazzella, Anne D. McCallion, Farhad Nanji, Jeffrey A. Perlowitz, Lisa M. Shalett, Theodore W. Tozer and Emily Youssouf for election as directors, and each nominee has consented to being named in this Proxy Statement and has agreed to serve if elected. If our director nominees are elected at this year’s Annual Meeting, they will serve until our annual meeting of stockholders in 2022 and until their successors have been duly elected and qualified.

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

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR DAVID A. SPECTOR, JAMES K. HUNT, JONATHON S. JACOBSON, PATRICK KINSELLA, JOSEPH MAZZELLA, ANNE D. MCCALLION, FARHAD NANJI, JEFFREY A. PERLOWITZ, LISA M. SHALETT, THEODORE W. TOZER AND EMILY YOUSSOUF AS DIRECTORS TO SERVE UNTIL OUR 2022 ANNUAL MEETING OF STOCKHOLDERS AND UNTIL THEIR RESPECTIVE SUCCESSORS ARE DULY ELECTED AND QUALIFIED.

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

 

 

Name

 

  

 

Age

 

  

 

Position

 

 

David A. Spector

 

  

 

58

 

  

 

Chairman

 

 

James K. Hunt

 

  

 

69

 

  

 

Director

 

 

Jonathon S. Jacobson

 

  

 

59

 

  

 

Director

 

 

Patrick Kinsella

 

  

 

67

 

  

 

Director

 

 

Joseph Mazzella

 

  

 

68

 

  

 

Director

 

 

Anne D. McCallion

 

  

 

66

 

  

 

Director

 

 

Farhad Nanji

 

  

 

42

 

  

 

Director

 

 

Jeffrey A. Perlowitz

 

  

 

64

 

  

 

Independent Lead Director

 

 

Lisa M. Shalett

 

  

 

54

 

  

 

Director

 

 

Theodore W. Tozer

 

  

 

64

 

  

 

Director

 

 

Emily Youssouf

 

  

 

69

 

  

 

Director

 

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

Director Nominees

 

 

 

 

DAVID A. SPECTOR

 

  

 

Mr. Spector has been a member of our Board since December 2012 and has been our Chairman and Chief Executive Officer since February 2021 and, prior thereto, as our President and Chief Executive Officer since January 2017. He served as our executive managing director, president and chief operating officer from February 2016 through December 2016 and, prior thereto, as president and chief operating officer from February 2013 to February 2016. Mr. Spector has also served in a variety of similar executive positions at PNMAC from its founding in January 2008. In addition, Mr. Spector has been a member of the board of PMT since its formation in May 2009 and has served as its chairman since February 2021. Prior to joining PNMAC, Mr. Spector was co-head of global residential mortgages for Morgan Stanley, a global financial services firm, based in London. Before joining Morgan Stanley in September 2006, Mr. Spector was the senior managing director, secondary marketing, at Countrywide, where he was employed from May 1990 to August 2006. Mr. Spector holds a BA from the University of California, Los Angeles. We believe Mr. Spector is qualified to serve on our Board because of his experience as a member of our executive management team and as an experienced executive with broad mortgage banking expertise in portfolio investments, interest rate and credit risk management, and capital markets activity that includes pricing, trading and hedging.

LOGO

 

 Board Member Since: 2012

 Age: 58

 

 

 

JAMES K. HUNT

 

 

  

 

Mr. Hunt has been a member of our Board since April 2013 and served as our independent lead director from April 2014 until February 2021. Mr. Hunt is currently retired. From November 2015 until his retirement in August 2016, Mr. Hunt served as the managing partner and CEO, middle market credit at Kayne Anderson Capital Advisors LLC, a leading alternative investment firm in the areas of energy, real estate, credit and specialty growth capital. From August 2014 to November 2015, Mr. Hunt served as non-executive chairman of the board of THL Credit, Inc., an externally-managed, non-diversified closed-end management investment company. Mr. Hunt served as chief executive officer and chief investment officer of THL Credit, Inc. and of THL Credit Advisors, a registered investment advisor that provides administrative services to THL Credit, Inc., from April 2010 to July 2014 and, prior thereto, held similar executive positions with predecessor entities since May 2007. Previously, Mr. Hunt was chief executive officer and managing partner of Bison Capital Asset Management, LLC, a private equity firm, from 2001 to 2007. Prior to co-founding Bison Capital, Mr. Hunt was the president of SunAmerica Corporate Finance and executive vice president of SunAmerica Investments (subsequently, AIG SunAmerica). Mr. Hunt currently serves on the board of CION Ares Diversified Credit Fund, a diversified, closed-end management investment company, and Hunt Capital Holdings. Mr. Hunt formerly served on the boards of THL Credit, Inc., THL Credit Advisors, Primus Guaranty, Ltd., Fidelity National Information Services, Inc. and Lender Processing Services, Inc. Mr. Hunt received a BBA from the University of Texas at El Paso and an MBA from the Wharton School of the University of Pennsylvania. We believe Mr. Hunt is qualified to serve on our Board because of his experience in capital markets and in managing financial services companies.

LOGO

 

 

 Board Member Since: 2013

 Age: 69

 

 Committees:

  Compensation

  Nominating and Corporate Governance (Chair)

 

 

 

18    LOGO   |  2021 Proxy Statement


Table of Contents
    PROPOSAL I – ELECTION OF DIRECTORS  

 

 

JONATHON S. JACOBSON

 

 

  

 

Mr. Jacobson has been a member of our board since February 2021. Mr. Jacobson is the founder of HighSage Ventures LLC, a private investment firm formed in 2019, which exclusively manages his family’s assets and those of the One8 Foundation. From 1998 to 2019, he served as the Chief Investment Officer and Chief Executive Officer of Highfields Capital Management LP, a Boston-based investment management firm that managed over $11 billion globally until October 2018, when it announced that it would return outside capital to investors. Prior to co-founding Highfields in 1998, Mr. Jacobson spent eight years as a senior portfolio manager at Harvard Management Company, Inc., which is responsible for investing Harvard University’s endowment. Mr. Jacobson is a former director of iHeartMedia, Inc. and iHeartCommunications, Inc. Currently, he is a member of the Lone Pine Capital LLC Advisory Board, a member of the Investment Committee of the Weizmann Global Endowment Management Trust, and a Lifetime Trustee and member of the Investment Committee of the Gilman School in Baltimore, Maryland. Previously, he served on the Board of Trustees of Brandeis University and the Board of Dean’s Advisors at Harvard Business School. Mr. Jacobson received an MBA from Harvard Business School and graduated magna cum laude with a B.S. in Economics from the Wharton School at the University of Pennsylvania. We believe Mr. Jacobson is qualified to serve on our Board because of his expertise in investing and financial services businesses as well as his prior public company board experience.

LOGO

 

 Board Member Since: 2021

 Age: 59

 

 Committees:

  Finance

  Nominating and Corporate Governance

 

 

PATRICK KINSELLA

 

  

 

Mr. Kinsella has been a member of our Board since July 2014. Prior to his retirement as a senior audit partner with KPMG LLP, or KPMG, in May 2013, Mr. Kinsella spent over 35 years at KPMG serving clients generally concentrated in the financial services sector, including banks, thrifts, mortgage companies, automotive finance companies, alternative investment companies and real estate companies. Mr. Kinsella served as an adjunct professor at the USC Marshall School of Business from August 2011 to May 2020. Mr. Kinsella also currently serves on the board of directors of Wrap Technologies, Inc., a developer of security products. Mr. Kinsella received a BS from California State University, Northridge and is a licensed certified public accountant in the State of California. We believe Mr. Kinsella is qualified to serve on our Board because of his extensive experience in providing professional accounting and auditing services to the financial services industry.

LOGO

 

 Board Member Since: 2014

 Age: 67

 

 Committees:

  Audit (Chair)

  Related Party Matters

  Risk

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

 

JOSEPH MAZZELLA

 

 

  

 

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

LOGO

 

 Board Member Since: 2012

 Age: 68

 

 Committees:

  Nominating and Corporate Governance

  Related Party Matters (Chair)

 

 

ANNE D. MCCALLION

 

 

  

 

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

LOGO

 

 Board Member Since: 2018

 Age: 66

 

 Committees:

  Finance

  Risk

 

 

FARHAD NANJI

 

 

  

 

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

LOGO

 

 Board Member Since: 2012

 Age: 42

 

 Committees:

  Compensation (Chair)

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

 

JEFFREY A. PERLOWITZ

Independent Lead Director

 

  

Mr. Perlowitz has been a member of our Board since February 2019 and our independent lead director since February 2021. He is currently retired. From 1998 until his retirement in 2016, Mr. Perlowitz served as managing director and co-head of global securitized markets at Citigroup and predecessor entities, where he was responsible for sales and trading of residential mortgage loans, commercial mortgages and consumer products. Mr. Perlowitz also currently serves as a director at the CION Ares Diversified Credit Fund. Mr. Perlowitz holds a B.S. in economics and accounting from The State University of New York at Albany. We believe Mr. Perlowitz is qualified to serve on our Board because of his extensive mortgage finance background and expertise in the securitization of residential mortgage loans.

LOGO

 Board Member Since: 2019

 Age: 64

 Committees:

  Compensation

  Finance

  Risk

 

 

LISA M. SHALETT

 

  

 

Ms. Shalett has been a member of our board since October 2020. Ms. Shalett is a former Goldman Sachs Partner and former Managing Partner at Brookfield Asset Management. Over her 20 years at Goldman Sachs, she held leadership roles in Equities, Global Compliance, Legal and Internal Audit, and Brand Marketing and Digital Strategy. At Brookfield, she was the firm’s first Head of Strategic Innovation. Currently, Ms. Shalett advises growth companies, serves on the boards of AccuWeather and Bully Pulpit Interactive, and is the founder of Extraordinary Women on Boards, a community of women board directors focused on board excellence. She holds a Masters of Business Administration from Harvard Business School and a B.A., summa cum laude, in East Asian Studies from Harvard University. We believe Ms. Shalett is qualified to serve on our Board because of her broad experience in finance, compliance, marketing and strategy in the financial services industry.

LOGO

 Board Member Since: 2020

 Age: 54

 Committees:

  Audit

  Nominating and Corporate Governance

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

 

THEODORE W. TOZER

 

  

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

LOGO

 

 Board Member Since: 2017

 Age: 63

 

 Committees:

  Audit

  Related Party Matters

  Risk (Chair)

 

 

EMILY YOUSSOUF

 

  

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

LOGO

 

 Board Member Since: 2013

 Age: 68

 

 Committees:

  Audit

  Finance (Chair)

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

Non-Management Director Compensation

 

 

The Compensation Committee reviews and recommends to our Board the form and level of director compensation and seeks outside advice from our independent compensation consultants on market practices when changes are contemplated. Director compensation was reviewed during September 2020 by our independent compensation consultant relative to certain peer companies and selected companies within the S&P 500 and Russell 3000 indexes. Our independent compensation consultant recommended an increase in the non-management director annual RSU grant as described below. The compensation program for our non-management directors is intended to be competitive and fair so that we can attract the best talent to our Board, and recognize the time and effort required of a director given the size and complexity of our operations. In addition to cash compensation, we provide equity grants and have stock ownership guidelines to align the directors’ interests with our stockholders’ interests and to motivate our directors to focus on our long-term growth and success. Our Chairman and Chief Executive Officer is not paid any fees for serving on our Board or for attending Board meetings.

The following table summarizes the annual retainer fees of our non-management directors as of the end of Fiscal 2020:

 

Base Annual Retainer, all non-management directors

 

   $ 80,000  

 

Additional Base Annual Retainer, independent lead director

 

   $ 30,000  

 

Base Annual Retainer, all non-management committee members:

 

  

 

Audit Committee

 

   $ 10,000  

 

Compensation Committee

 

   $ 7,750  

 

Finance Committee

 

   $ 7,750  

 

Nominating and Corporate Governance Committee

 

   $ 5,750  

 

Related Party Matters Committee

 

   $ 5,750  

 

Risk Committee

 

   $ 10,000  

 

Additional Annual Retainer, all committee chairs:

 

  

 

Audit Committee

 

   $ 12,000  

 

Compensation Committee

 

   $ 10,750  

 

Finance Committee

 

   $ 10,750  

 

Nominating and Corporate Governance Committee

 

   $ 7,750  

 

Related Party Matters Committee

 

   $ 7,750  

 

Risk Committee

 

   $ 12,000  

Our non-management directors are also eligible to receive certain types of equity-based awards under the 2013 Plan that vest on the first anniversary of the grant date. During Fiscal 2020, each of Messrs. Botein, Hunt, Kinsella, Mazzella, Nanji, Perlowitz, Tozer and Mmes. McCallion and Youssouf received a grant of 2,911 time-based restricted stock units, or RSUs, on February 26, 2020 in each case with a grant date fair value of approximately $102,000. In addition, per the terms of the Kurland Agreement (as defined below), Mr. Kurland received director fees and equity grants in an amount equal to 2.5 times the amount granted to any other non-management director, and accordingly Mr. Kurland received a grant of 7,279 RSUs on February 26, 2020 with a grant date fair value of $255,000. Before September 8, 2020, each non-management director elected or appointed to our Board was entitled to receive a one-time initial RSU grant with a grant date fair value of approximately $102,000 in RSUs (prorated for the annual equity award cycle) that vests upon the one (1) year anniversary of the date of the grant. Effective September 8, 2020 the non-management director annual RSU grant was increased to $125,000.

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

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

Policy Regarding Receipt of Shares in Lieu of Cash Director Fees. During 2014, the Board adopted a policy whereby non-management director fees may be paid in cash or common stock at the election of each non-management director. The number of shares of common stock delivered in lieu of any cash payment of director fees shall be equivalent in value to the amount of forgone director fees divided by the market value (as defined in our 2013 Plan) of the common stock on the last market trading day preceding the day on which the director fees otherwise would have been paid in cash to the non-management director, rounded down to the nearest whole share.

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

2020 Director Compensation Table

 

 

The table below summarizes the compensation earned by each non-management director who served on our Board for Fiscal 2020.

 

 

Name(1)

 

    

 

Fees Earned
or Paid
in Cash
($)
(2)

 

      

 

Stock
Awards
($)
(3)

 

    

 

Total   
($)  

 

 

 

Matthew Botein(4)

 

    

 

 

 

 

        63,519

 

 

 

 

    

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

165,519  

 

 

 

 

 

James K. Hunt

 

    

 

 

 

 

131,250

 

 

 

 

    

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

233,250  

 

 

 

 

 

Patrick Kinsella

 

    

 

 

 

 

117,750

 

 

 

 

    

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

219,750  

 

 

 

 

 

Stanford L. Kurland(5)

 

    

 

 

 

 

344,885

 

 

 

 

    

 

 

 

 

255,000

 

 

 

 

  

 

 

 

 

599,885  

 

 

 

 

 

Joseph Mazzella

 

    

 

 

 

 

 

 

 

 

    

 

 

 

 

201,250

 

 

 

 

  

 

 

 

 

201,250  

 

 

 

 

 

Anne D. McCallion

 

    

 

 

 

 

97,750

 

 

 

 

    

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

199,750  

 

 

 

 

 

Farhad Nanji

 

    

 

 

 

 

 

 

 

 

    

 

 

 

 

199,502

 

 

 

 

  

 

 

 

 

199,502  

 

 

 

 

 

Jeffrey A. Perlowitz

 

    

 

 

 

 

100,635

 

 

 

 

    

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

202,635  

 

 

 

 

 

Lisa M. Shalett

 

    

 

 

 

 

20,295

 

 

 

 

    

 

 

 

 

45,765

 

 

(6) 

 

  

 

 

 

 

66,060  

 

 

 

 

 

Theodore W. Tozer

 

    

 

 

 

 

117,750

 

 

 

 

    

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

219,750  

 

 

 

 

 

Emily Youssouf

 

    

 

 

 

 

108,500

 

 

 

 

    

 

 

 

 

102,000

 

 

 

 

  

 

 

 

 

210,500  

 

 

 

 

 

(1)

Mr. Spector, our Chairman and Chief Executive Officer, is not included in this table as he was an officer of our Company during Fiscal 2020 and thus receives no additional compensation for his services as director. Mr. Jacobson is not included in this table since he started serving as a director after the end of our 2020 fiscal year.

(2)

Reflects fees earned by the director in Fiscal 2020, whether or not paid in such year. During all or part of Fiscal 2020, each of Messrs. Mazzella and Nanji elected to receive his director fees in shares of common stock in lieu of cash.

(3)

Reflects the grant date fair value, as determined in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation—Stock Compensation, or ASC 718, of RSUs granted to Messrs. Botein, Hunt, Kinsella, Kurland, Mazzella, Nanji, Perlowitz, Tozer and Mmes. McCallion and Youssouf on February 26, 2020. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service vesting conditions. For more information on the assumptions used in our estimates of value, please refer to Note 20—Stock-based Compensation in our Annual Report on Form 10-K filed on February 25, 2021. The amounts reported in this column reflect the accounting cost for these RSUs and do not correspond to the actual economic value that may be received by the directors upon vesting and/or settlement of the RSUs. As of December 31, 2020, each of our non-management directors held an aggregate number of RSUs in the following amounts: Messrs. Hunt, Kinsella, Mazzella, Nanji, Tozer and Ms. Youssouf – 4,236, Mr. Kurland – 7,279, Ms. McCallion – 5,205, Mr. Perlowitz – 2,911 and Ms. Shalett – 691.

(4)

Mr. Botein resigned from the Board on August 6, 2020.

(5)

In addition, time-based and performance-based restricted share units were awarded by PennyMac Mortgage Investment Trust (PMT) to Mr. Kurland in his capacity as its Executive Chairman during Fiscal 2020 consistent with its compensation program and philosophy. These PMT restricted share units were granted on March 3, 2020 and have grant date fair values, as determined in accordance with ASC 718, of $1,091,988.

(6)

Includes an initial, prorated equity grant of 691 RSUs with a grant date fair value of approximately $45,765 that Ms. Shalett received upon her appointment to our Board in October 2020.

 

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    PROPOSAL I – ELECTION OF DIRECTORS  

 

Non-Management Director Stock Ownership Guidelines

 

 

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

 

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Table of Contents
    AUDIT MATTERS  

 

Audit Matters

Report of the Audit Committee

 

 

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

The Audit Committee met eight times in 2020. The Audit Committee’s agenda is established by the Chair of the Audit Committee. The Audit Committee engaged Deloitte & Touche LLP, or Deloitte, as the Company’s independent registered public accounting firm and reviewed with the Company’s Chief Financial Officer and Deloitte the overall audit scope and plans, the results of the external audit examination, evaluations by the independent registered public accounting firm of the Company’s internal controls and the quality of its financial reporting.

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

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

In reliance on these reviews and discussions, and the reports of Deloitte, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the Company’s audited financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 25, 2021.

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

Patrick Kinsella, Chair

Lisa M. Shalett

Theodore W. Tozer

Emily Youssouf

 

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    AUDIT MATTERS  

 

Relationship with Independent Registered Public Accounting Firm

 

 

In addition to performing the audits of our financial statements in Fiscal 2020 and Fiscal 2019, Deloitte provided other audit-related and non-audit-related services for us during these years.

Fees to Registered Public Accounting Firm for 2020 and 2019

 

 

The following table shows the fees billed by Deloitte for the audit and other services it provided to us in respect of Fiscal 2020 and Fiscal 2019.

 

     

 

2020

 

    

 

2019

 

 

 

Audit Fees (1)

 

  

 

$

 

 

2,342,345

 

 

 

 

  

 

$

 

 

2,253,349

 

 

 

 

 

Audit-Related Fees (2)

 

  

 

 

 

 

709,031

 

 

 

 

  

 

 

 

 

514,427

 

 

 

 

 

Tax Fees

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

All Other Fees (3)

 

  

 

 

 

 

200,000

 

 

 

 

  

 

 

 

 

30,000

 

 

 

 

  

 

 

    

 

 

 

 

Total

 

  

 

$

 

 

3,251,376

 

 

 

 

  

 

$

 

 

2,797,776

 

 

 

 

 

(1)

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

(2)

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

(3)

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

Pre-Approval Policies and Procedures

 

 

The Audit Committee approved all services performed by Deloitte during Fiscal 2020 in accordance with applicable SEC requirements. The Audit Committee has also pre-approved the use of Deloitte for certain audit-related and non-audit-related services, setting a specific limit on the amount of such services that we may obtain from Deloitte before additional approval is necessary. In addition, the Audit Committee has delegated to the chair of the Audit Committee the authority to approve both audit-related and non-audit-related services provided by Deloitte, provided that the chair will present any decision to the full Audit Committee for ratification at its next scheduled meeting.

 

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Table of Contents
    PROPOSAL II – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   

 

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

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

OUR BOARD OF DIRECTORS AND OUR AUDIT COMMITTEE UNANIMOUSLY RECOMMEND A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2021.

 

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Table of Contents
    SECURITY OWNERSHIP INFORMATION  

 

Security Ownership Information

Security Ownership of Executive Officers and Directors

 

 

The following table sets forth certain information regarding the beneficial ownership of shares of common stock by (1) each of our named executive officers, (2) each of our current directors and director nominees, and (3) all of our current directors and executive officers as a group as of April 6, 2021. Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting and investment power.

 

    

 

Common Stock
Beneficially Owned
(1)

 

 
    

 

Number

 

    

 

Percentage

 

 

 

  Executive Officers and Directors

 

     

  David A. Spector (2)

 

    

 

2,066,741

 

 

 

    

 

3.1

 

 

  Doug Jones (3)

 

    

 

900,153

 

 

 

    

 

1.3

 

 

  Vandad Fartaj (4)

 

    

 

1,141,789

 

 

 

    

 

1.7

 

 

  Andrew S. Chang

 

    

 

1,209,014

 

 

 

    

 

1.8

 

 

  Jeffrey P. Grogin(5)

 

    

 

526,974

 

 

 

    

 

*

 

 

 

  James K. Hunt(6)

 

    

 

78,414

 

 

 

    

 

*

 

 

 

  Jonathon S. Jacobson(7)

 

    

 

219,760

 

 

 

    

 

*

 

 

 

  Patrick Kinsella

 

    

 

30,721

 

 

 

    

 

*

 

 

 

  Joseph Mazzella (8)

 

    

 

514,225

 

 

 

    

 

*

 

 

 

  Anne D. McCallion (9)

 

    

 

281,460

 

 

 

    

 

*

 

 

 

  Farhad Nanji (10)

 

    

 

1,675,393

 

 

 

    

 

2.5

 

 

  Jeffrey A. Perlowitz

 

    

 

7,556

 

 

 

    

 

*

 

 

 

  Lisa M. Shalett

 

    

 

0

 

 

 

    

 

*

 

 

 

  Theodore W. Tozer

 

    

 

13,259

 

 

 

    

 

*

 

 

 

  Emily Youssouf

 

    

 

34,878

 

 

 

    

 

*

 

 

 

  Current directors and executive officers as a group (16 persons)

 

             

 

12.9

 

 

 

*

Represents less than 1.0%.

(1)

Based on 66,990,511 shares of common stock outstanding as of the record date. Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. A person is deemed to be the beneficial owner of any shares of common stock if that person has or shares voting power or investment power with respect to those shares or has the right to acquire beneficial ownership at any time within 60 days of the record date. As used herein, “voting power” is the power to vote or direct the voting of shares and “investment power” is the power to dispose or direct the disposition of shares. None of the shares have been pledged as security.

(2)

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

(3)

Includes 300,000 shares of common stock held by Jones A LLC, 300,000 shares of common stock held by Jones B LLC, and 20,692 shares held by the Jones Family Trust.

(4)

Includes 844,959 shares of common stock held by the Fartaj Family Trust.

(5)

Includes 21,000 shares held by the JBG Children’s Trust, 22,129 shares held by the MJG Children’s Trust, 453,655 shares held by the Grogin Living Trust, and 4,395 shares held by the Grogin Giving Fund.

(6)

Includes 36,821 shares of common stock held by the Hunt Living Trust 1994.

(7)

Includes 219,760 shares of common stock owned by Highline Investments LLC. Mr. Jacobson disclaims beneficial ownership of the common stock except to the extent of his pecuniary interest therein.

(8)

Includes 152,031 shares of common stock owned by the Mazzella Family Irrevocable Trust. Mr. Mazzella is not a trustee of that entity, however, and disclaims beneficial ownership of the common stock held by that entity.

(9)

Includes 144,661 shares of common stock held by the McCallion Family Trust.

(10)

Includes 1,508,743 shares of common stock held by MFN Partners, LP (MFN Partners). MFN Partners GP, LLC (MFN GP) is the general partner of MFN Partners. MFN Partners Management, LP (MFN Management) is the investment adviser to MFN Partners. MFN Partners Management, LLC (MFN LLC) is the general partner of MFN Management. Mr. Nanji is a managing member of MFN GP and of MFN LLC but disclaims beneficial ownership of the securities held by MFN Partners, except to the extent of his pecuniary interest, if any, therein.

 

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Table of Contents
    SECURITY OWNERSHIP INFORMATION  

 

Security Ownership of Other Beneficial Owners

 

 

The following table sets forth certain information relating to the beneficial ownership of shares of our common stock by each person or entity known to our Company to be the beneficial owner of more than five percent of our shares of our common stock, based on our review of publicly available statements of beneficial ownership filed with the SEC. Beneficial ownership reflected in the table below is based on 66,990,511 shares of common stock outstanding as of the record date and review of publicly available statements of beneficial ownership filed with the SEC.

 

   

 

Common Stock
Beneficially Owned

 

 
   

 

Number

 

    

 

Percentage

 

 

 

  5% Stockholders

 

    

  HC Partners LLC (1)

  200 Clarendon Street, 59th Floor

  Boston, Massachusetts 02116

 

   

 

15,741,237

 

 

 

    

 

23.5

 

 

  Kurland Family Investments, LLC(2)

  3043 Townsgate Road

  Westlake Village, California 91361

   

 

7,471,784

 

 

 

    

 

11.2

 

 

  T. Rowe Price Associates, Inc.(3)

  100 E. Pratt Street

  Baltimore, Maryland 212025

   

 

5,451,137

 

 

 

    

 

8.1

 

 

  The Vanguard Group, Inc. (4)

  100 Vanguard Blvd.

  Malvern, Pennsylvania

   

 

4,062,712

 

 

 

    

 

6.1

 

 

  BlackRock, Inc.(5)

  55 East 52nd Street

  New York, New York 10022

   

 

3,726,371

 

 

 

    

 

5.6

 

 

 

(1)

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

(2)

As reported in Form 4 filed with the SEC on April 8, 2021. Includes 115,544 shares of common stock held by the 1998 Kurland Revocable Trust.

(3)

As reported in Amendment No. 2 to Schedule 13G filed with the SEC on February 16, 2021, T. Rowe Price Associates, Inc. disclosed that it has sole voting power over 1,532,901 shares of common stock and sole dispositive power over 5,451,137 shares of common stock as of December 31, 2020.

(4)

As reported in Schedule 13G filed with the SEC on February 2, 2021, BlackRock, Inc. disclosed that it has sole voting power over 3,383,800 shares of common stock and sole dispositive power over 3,726,371 shares of common stock as of December 31, 2020.

(5)

As reported in Schedule 13G filed with the SEC on February 10, 2021, The Vanguard Group, Inc. disclosed that it has shared voting power over 57,354 shares of common stock, sole dispositive power over 3,962,478 shares of common stock, shared dispositive power over 100,234 shares of common stock as of December 31, 2020.

 

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Table of Contents
    EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION  

 

Executive Officers and Executive Compensation

Our Executive Officers

 

 

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

 

 

Name

 

 

 

Age

 

  

 

Position Held with the Company

 

 

 

David A. Spector

 

 

 

58

  

 

 

Chairman and Chief Executive Officer

 

 

Andrew S. Chang

 

 

 

43

  

 

 

Senior Managing Director and Chief Operating Officer

 

 

Vandad Fartaj

 

 

 

46

  

 

 

Senior Managing Director and Chief Investment Officer

 

 

Doug Jones

 

 

 

64

  

 

 

President and Chief Mortgage Banking Officer

 

 

Daniel S. Perotti

 

 

 

40

  

 

 

Senior Managing Director and Chief Financial Officer

 

 

Derek W. Stark

 

 

 

53

  

 

 

Senior Managing Director, Chief Legal Officer and Secretary

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

Andrew S. Chang. Mr. Chang, age 43, has been our Senior Managing Director and Chief Operating Officer since January 2021. Mr. Chang oversees finance and enterprise operations, including marketing, human resources, corporate administration and regulatory relations; information technology; enterprise risk; and strategic planning and corporate sustainability. Prior thereto, he served as our Senior Managing Director and Chief Financial Officer from January 2017 through December 2020, the Company’s Senior Managing Director and Chief Business Development Officer from February 2016 through December 2016 and our Chief Business Development Officer from February 2013 to February 2016. Mr. Chang also has served in a variety of similar executive positions at PNMAC since May 2008. Prior to joining the PNMAC, Mr. Chang was employed at BlackRock as a senior member in its advisory services practice from 2005 to 2008, and was employed at McKinsey & Company as a management consultant from 1999 to 2005. Mr. Chang earned an A.B. magna cum laude with highest honors in biology from Harvard University. Mr. Chang is an experienced financial services executive with substantial experience in corporate finance and mortgage banking.

Vandad Fartaj. Mr. Fartaj, age 46, has been our Senior Managing Director and Chief Investment Officer since September 2018. Prior thereto, he served as Senior Managing Director and Chief Capital Markets Officer from February 2016 to September 2018 and as Chief Capital Markets Officer from February 2013 to February 2016. Mr. Fartaj also has served in a variety of similar executive positions at PNMAC since April 2008. Mr. Fartaj is responsible for all capital markets and investment-related activities, including the development and execution of investment strategies, secondary marketing, hedging activities, research, and capital markets strategies with government-sponsored enterprises. In addition, Mr. Fartaj is responsible for developing and managing relationships with Wall Street broker-dealers and fixed income investors. Prior to joining PNMAC, from November 1999 to April 2008, Mr. Fartaj was employed in a variety of positions at Countrywide Securities Corporation, including managing the strategy and execution of the whole loan conduit. Mr. Fartaj is an experienced mortgage banking executive with substantial experience in capital markets, mortgage-related investments, and interest rate and credit risk management.

Doug Jones. Mr. Jones, age 64, has been our President and Chief Mortgage Banking Officer since March 2021. Prior thereto, he served as the Company’s Senior Managing Director and Chief Mortgage Banking Officer since January 2017, the Senior Managing Director and Chief Institutional Mortgage Banking Officer from February 2016 through December 2016, the Chief Institutional Mortgage Banking Officer from March 2015 to February 2016, and the Chief Correspondent Lending Officer from February 2013 to March 2015. He has served on the Company’s executive management team since 2012. Mr. Jones also has served in a variety of similar executive positions at PNMAC since June 2011, including the president of PLS since March 2017. Mr. Jones is responsible for all business activities relating to our loan production and loan servicing operations. Prior to joining PNMAC, Mr. Jones worked in several executive positions, including senior managing director, correspondent lending, at Countrywide (and Bank of America Corporation, as its successor) from 1997 until 2011, where he was responsible for managing and overseeing correspondent and warehouse lending operations. Mr. Jones is an experienced mortgage banking executive with significant experience in the correspondent production and warehouse lending businesses.

 

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Table of Contents
    EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION  

 

Daniel S. Perotti. Mr. Perotti, age 40, has been our Senior Managing Director and Chief Financial Officer since January 1, 2021. Prior thereto, he served as the Company’s Deputy Chief Financial Officer from January 2017 to December 2020, and served as the Company’s Chief Asset and Liability Management Officer among other positions at PNMAC since 2008. Mr. Perotti is responsible for overseeing the Company’s accounting and financial reporting, treasury operations, investor relations, financial planning and analysis, valuation of investment assets, tax analysis, and Sarbanes-Oxley program. Prior to joining PNMAC, Mr. Perotti was employed at BlackRock and served as the head of the quantitative research team within its BlackRock Solutions business as well as in various other roles at BlackRock from 2002 to 2008. Mr. Perotti earned a B.A. in economics and computer science from Columbia University. Mr. Perotti is an experienced financial services executive with substantial experience in corporate finance and mortgage banking.

Derek W. Stark. Mr. Stark, age 53, has been our Senior Managing Director, Chief Legal Officer and Secretary since February 2018. Mr. Stark is responsible for overseeing all of the company’s legal management, including securities, corporate governance, corporate transactions, litigation and regulatory compliance, and he serves as the primary legal contact for the Company’s Board. Mr. Stark previously served as our Managing Director, General Counsel and Secretary among other executive positions at PNMAC since September 2009. Prior to joining PNMAC, and after leaving private practice, Mr. Stark served in a variety of executive positions, including Executive Vice President and Deputy General Counsel, from 1999 to 2008, at Countrywide. Mr. Stark earned a B.A. in Political Science from the University of California, Berkeley, and a J.D. from Loyola Law School, Los Angeles. Mr. Stark is an experienced legal executive with significant experience in corporate and securities law and mortgage banking.

 

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Table of Contents
    REPORT OF THE COMPENSATION COMMITTEE  

 

Report of the Compensation Committee

Our Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on such review and discussions, the Compensation Committee recommended that our Board of Directors include the Compensation Discussion and Analysis in this Proxy Statement and our 2020 Annual Report on Form 10-K.

The Compensation Committee

Farhad Nanji, Chair

James K. Hunt

Jeffrey A. Perlowitz

 

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Table of Contents
    COMPENSATION DISCUSSION AND ANALYSIS  

 

Compensation Discussion and Analysis

Table of Contents

 

 

 

2020 Named Executive Officers

 

  

34

Executive Summary of 2020 Compensation

 

  

35

Performance-Based Compensation Mix

 

  

36

2020 Compensation Program Overview

 

  

38

Stockholder Engagement and Executive Compensation Design Enhancements

 

  

39

Compensation Decisions Made in Fiscal 2020

 

  

40

Compensation Decisions Made in Fiscal 2021

 

  

44

Executive Compensation Objectives and Philosophy

 

  

45

Executive Stock Ownership Guidelines

 

  

48

Clawback Provisions

 

  

49

Trading Controls and Anti-Pledging and Anti-Hedging Policies

 

  

49

Employment and Change-in-Control Arrangements

 

  

49

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

2020 Named Executive Officers

 

 

Our “named executive officers” consisting of our Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executives during Fiscal 2020, were:

 

   

David A. Spector, Chairman and Chief Executive Officer (former President and Chief Executive Officer in Fiscal 2020);

 

   

Doug Jones, President and Chief Mortgage Banking Officer (former Senior Managing Director and Chief Mortgage Banking Officer in Fiscal 2020);

 

   

Vandad Fartaj, Senior Managing Director and Chief Investment Officer;

 

   

Andrew S. Chang, Senior Managing Director and Chief Operating Officer (former Senior Managing Director and Chief Financial Officer in Fiscal 2020); and

 

   

Jeffrey P. Grogin, Senior Managing Director and Chief Enterprise Operations Officer.

 

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Table of Contents
    COMPENSATION DISCUSSION AND ANALYSIS  

 

Executive Summary of 2020 Compensation

 

 

 

 

Our Executive Compensation Goals

 

 

  

 

   Performance Based - Create a pay-for-performance culture where a majority of total compensation for each named executive officer is performance based

 

   Stockholder Alignment - Align the interests of our executives with those of our stockholders with long term equity awards and performance based compensation

 

   Market Competitive - Assess named executive officer compensation against market compensation benchmarks prepared by our independent board consultant

 

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

 

   Support Strategy - Encourage executives to focus on achieving our annual and long-term business goals

 

   

 

 

Fiscal 2020 Financial Results

 

We delivered exceptional financial performance in Fiscal 2020, while responding to the operational challenges caused by the COVID-19 pandemic such as the CARES Act forbearance program, including:

 

 

  

 

   Net income was $1.6 billion, up 319% from $393.0 million in 2019

 

   Diluted earnings per share of $20.92, up 328% from $4.89 in 2019

 

   Total net revenue of $3.7 billion, up 151% from $1.5 billion in 2019

 

   Loan production of $197 billion in UPB, an increase of 67 percent from 2019, which included $23 billion in UPB of consumer direct production and $12 billion of broker direct production

 

   Servicing portfolio reached $427 billion in UPB, up 16 percent from 2019

 

   Return on equity was 61%

 

   

 

 

Fiscal 2020 Compensation Program Highlights

 

 

  

 

   Our former Executive Chairman’s compensation was changed to reflect his non-executive director status

 

   Fiscal 2020 annual cash bonuses were limited to the amounts paid in Fiscal 2019

 

   Increased the proportion of targeted compensation based on equity while decreasing the target portion of cash compensation, resulting in the CEO’s equity component increasing from 20% to 39% and the other named executive officers increasing from 20% to 36% in Fiscal 2020

 

   Performance-based RSUs were revised to add a leverage ratio modifier as a secondary performance metric

 

   Performance-based RSUs ROE target increased to 15% in Fiscal 2020, a significant increase over Fiscal 2019’s target of 12%

 

   

 

 

Fiscal 2021 Compensation Program Highlights

 

 

  

 

   Commencing in Fiscal 2021, our annual incentive program was revised to more objectively link potential payouts with pre-established return on equity goals (70% of target incentive) with the remaining opportunity tied to strategic goals and objectives (30% of target incentive)

 

   

 

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Table of Contents
    COMPENSATION DISCUSSION AND ANALYSIS  

 

Performance-Based Compensation Mix

 

 

We have three primary elements of total compensation: base salary, annual performance-based cash incentives, and long-term equity awards. As illustrated by the segments in the following graphs, 91% of our CEO’s total compensation opportunity was performance-based and aligned with our stockholders in the form of annual performance-based cash incentives and long-term equity compensation. For our other named executive officers, 90% of their total compensation opportunity also was performance-based. In Fiscal 2020, the Compensation Committee substantially increased the percentage of long term equity incentives as a percentage of total compensation for our CEO and other named executive officers.

CEO performance-based compensation was 91% and long term equity incentives increased to 39% in 2020

 

 

LOGO

  

 

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Other named executive officer performance-based compensation was 90% and long term equity incentives increased to 36% in 2020

 

 

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Table of Contents
    COMPENSATION DISCUSSION AND ANALYSIS  

 

Pay-for-Performance Philosophy and Total Versus Realized Pay

Consistent with our pay-for-performance philosophy, a significant portion of our named executive officers’ 2020 compensation consisted of variable performance-based annual and long-term incentives. As an illustration of our commitment to pay for performance, below is our CEO’s total compensation as set forth in the “2020 Summary Compensation Table” of this Proxy Statement and our past annual proxy statements, compared to the total amount of compensation actually realized by our CEO for each year.

 

 

Year

 

 

Salary

($)

 

   

Bonus

($)

 

   

Total Cash

($)

 

   

All Other
Compensation

($)

 

   

 

Total
Grant Date
Fair Value of
Long-Term
Equity

Incentive
Opportunity

($)(1)

 

   

Total
Realized
Value of
Long-Term
Equity
Incentive
Opportunity

($)(2)

 

   

Total
Grant Date
Compensation

($)

 

   

Total Realized
Compensation

($)

 

 

 

2020

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

6,400,000

 

 

 

 

 

 

 

 

 

7,400,000

 

 

 

 

 

 

 

 

 

82,229

 

 

 

 

 

 

 

 

 

4,893,099

 

 

 

 

 

 

 

 

 

2,038,313

 

 

 

 

 

 

 

 

 

12,375,328

 

 

 

 

 

 

 

 

 

9,520,542

 

 

 

 

 

2019

 

   

 

900,000

 

 

 

   

 

7,155,000

 

 

 

   

 

8,055,000

 

 

 

   

 

64,617

 

 

 

   

 

2,004,640

 

 

 

   

 

1,702,737

 

 

 

   

 

10,124,258

 

 

 

   

 

9,822,355

 

 

 

 

2018

 

   

 

750,000

 

 

 

   

 

2,900,000

 

 

 

   

 

3,650,000

 

 

 

   

 

76,271

 

 

 

   

 

2,051,348

 

 

 

   

 

1,986,072

 

 

 

   

 

5,777,619

 

 

 

   

 

5,712,343

 

 

 

 

(1)

This amount includes the aggregate grant date fair value, as determined in accordance with ASC 718, of RSUs, performance-based RSUs, or PSUs, and nonstatutory stock options awarded on March 9, 2018, March 15, 2019, February 26, 2020 and December 14, 2020. The performance-based RSUs included in this column are reported at target payout levels. See the “2020 Grants of Plan-Based Awards” table for additional details. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service vesting conditions. For more information on the assumptions used in our estimates of value, please refer to Note 20—Stock-based Compensation in our Annual Report on Form 10-K filed on February 25, 2021. The amounts reported in this column reflect the accounting cost for these RSUs and do not correspond to the actual economic value that may be received by the named executive officers upon vesting and/or settlement of the RSUs.

(2)

For Fiscal 2020, this amount includes the vesting of 55,726 PSUs on March 17, 2020, 9,234 RSUs on March 6, 2020, 7,058 RSUs shares on March 9, 2020, and 7,398 RSUs on March 15, 2020 based on the fair market value of our common stock on the respective vesting dates.

 

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

 

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Table of Contents
    COMPENSATION DISCUSSION AND ANALYSIS  

 

2020 Compensation Program Overview

 

 

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

 

 

Compensation

Element

 

 

 

Characteristics

 

      

 

Performance

Based?

 

 

 

Primary Purpose

 

         

 

Annual Base Salary

 

 

 

Competitive fixed

compensation

 

     

No

 

 

 

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

  Supports attraction and retention of talented executives

 

         

 

Annual Performance-

Based Cash Incentives

 

 

 

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

 

     

Yes

 

 

 

  Aligns executive compensation with annual performance

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

  Supports attraction and retention of talented executives

 

         

 

Long-Term Equity

Awards

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

 

 

 

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

 

      Yes  

 

  Creates incentives for long-term performance

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

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

  Recognizes executive’s individual performance and future contributions

  Supports attraction and retention of talented executives

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

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

 

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

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

 

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    COMPENSATION DISCUSSION AND ANALYSIS  

 

Stockholder Engagement and Executive Compensation Design Enhancements

 

 

At our 2020 annual meeting of stockholders, our Say-On-Pay proposal itself received the support of approximately 66% of the total votes cast. By contrast, at our 2019 annual meeting, our Say-On-Pay proposal received the affirmative vote of approximately 77% of the total stockholder votes cast, and at our 2018 annual meeting, our Say-On-Pay proposal received the affirmative vote of approximately 81% of the total stockholder votes cast. Following our 2020 stockholder meeting, the Compensation Committee and Board of Directors closely reviewed the stockholder vote on our Say-On-Pay resolutions and the differences in voting results between our 2020 annual meeting results and prior years, including the recommendations made by certain proxy advisory firms. After our 2020 annual meeting, our senior management held meetings with a majority of our stockholders to discuss the 2020 annual meeting results and our compensation program.

We believe the recommendations of the proxy advisory firms, and the higher negative vote in last year’s Say-On-Pay proposal, were attributable to certain features associated with our compensation programs for the named executive officers, including a lack of clarity on the annual incentive program, certain special awards made to named executive officers, and the pay of our former Executive Chairman. The Company made certain compensation enhancements to address investor concerns, including approving an annual incentive plan with objective payouts and increasing the proportion of equity awards (stock options, RSUs and PSUs) to total compensation as follows:

 

What We Heard from
Investors

         Our Response
Executive Chairman Compensation    Executive Chairman’s total compensation should be less than your CEO.   

Our former Executive Chairman’s compensation was changed to reflect his non-management director status. See page 23.

 

Annual Incentive Criteria    Annual incentives were not based on objective performance criteria.   

Commencing in Fiscal 2021, our annual incentive program was revised to more objectively link potential payouts with pre-established return on equity goals (70% of target incentive) with the remaining opportunity tied to strategic goals and objectives (30% of target incentive)] See page 44.

 

Long Term Equity Incentives
Percentage of Total
Compensation
   Equity incentives should be a higher percentage of each named executive officers total compensation.   

Our CEO’s equity incentives increased from 20% to 39% of total compensation year over year.

 

All other named executive officers’ equity incentives increased from 20% to 36% of their total compensation year over year. See page 36.

 

Fiscal 2020 annual cash bonuses were limited to the amounts paid in Fiscal 2019. See page 41.

 

Performance-Based RSUs
Performance Metrics
   Performance-based RSUs should include another financial performance measure other than return on equity (ROE).   

Performance-based RSUs in Fiscal 2020 were revised to include multiple financial metrics: (1) return on equity and (2) a leverage ratio modifier based on total recourse debt. See page 42.

 

Performance-Based RSUs
Target Setting
   Fiscal 2019 Performance-based RSUs ROE target of 12% was lower than the previous year’s target.   

Performance-based RSUs ROE targets were set at 15% which is a significant increase over the previous year’s target of 12% due to past and expected performance. See page 42.

 

Performance-Based RSUs
Vesting Conditions
   Performance-based RSUs results and vesting conditions from prior year awards should be clearly disclosed.   

We expanded disclosure to provide additional details about performance-based RSUs results and vesting conditions. See page 43.

 

 

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Compensation Decisions Made in Fiscal 2020

 

 

In making compensation decisions for Fiscal 2020, the Compensation Committee considered the 2020 Say-On-Pay advisory vote. The Compensation Committee also considers additional factors, which are summarized below.

Annual Base Salaries

In setting annual base salaries, the Compensation Committee generally considers benchmarking data derived from a review of the proxy statement disclosures of our peer group, and various survey sources.

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

In connection with the annual compensation review in March 2020, the Compensation Committee approved the following annual base salaries of our named executive officers:

 

 

Name

 

  

 

2019
Annual
Base
Salary

 

    

 

2020
Annual
Base
Salary

 

 

 

David A. Spector

 

  

 

$

 

 

900,000  

 

 

 

  

 

$

 

 

1,000,000  

 

 

 

 

Doug Jones

 

  

 

$

 

 

550,000  

 

 

 

  

 

$

 

 

600,000  

 

 

 

 

Vandad Fartaj

 

  

 

$

 

 

350,000  

 

 

 

  

 

$

 

 

400,000  

 

 

 

 

Andrew S. Chang

 

  

 

$

 

 

325,000  

 

 

 

  

 

$

 

 

400,000  

 

 

 

 

Jeffrey P. Grogin

 

  

 

$

 

 

—  

 

 

 

 

  

 

$

 

 

350,000  

 

 

 

The Compensation Committee believed that these annual base salaries were appropriate given the competitive market for their services, as well as their individual performances and strong leadership skills.

 

   

The annual base salary for Mr. Spector increased by 11.1% and ranked between the median and 75th percentile of annual base salaries paid for comparable positions at peer companies. This annual base salary increased due to the terms of his employment agreement that were driven by the competitive market for talent and in recognition of his individual performance in his role as Chief Executive Officer.

 

   

The annual base salary for Mr. Jones increased by 9.1% and ranked above the 75th percentile of annual base salaries paid for comparable positions at peer companies. This annual base salary increased due to the terms of his employment agreement that were driven by the competitive market for talent and in recognition of his individual performance in his role as Chief Mortgage Banking Officer.

 

   

The annual base salary for Mr. Fartaj increased by 14.3% and ranked below the median of the annual base salaries paid for comparable positions at peer companies. This annual base salary increased due to the competitive market for talent and in recognition of his individual performance in his role as Chief Investment Officer.

 

   

The annual base salary for Mr. Chang increased by 23.0% and ranked below the median of the annual base salaries paid for comparable positions at peer companies. This annual base salary increased due to the competitive market for talent and in recognition of his individual performance in his role as Chief Financial Officer.

Annual Performance-Based Cash Incentives

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

 

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The performance-based cash incentives paid to our named executive officers are based on the achievement of the Company’s financial performance targets and the individual performance of each named executive officer. Fiscal 2020 financial performance targets were based on earnings per share (EPS) and pretax income. We believe that EPS and pretax income are appropriate measures for annual performance-based cash incentives because they provide our named executive officers with an incentive to achieve favorable current results, while also producing sustainable long-term stockholder value. In setting EPS and pretax income targets, we consider our current and historical performance, the performance of companies in industries in which we compete, and current and anticipated market conditions.

 

Performance Metrics

 

  

Why Selected

 

   

Earnings Per Share (EPS)

 

  

Incentivizes to focus on profitability

 

Aligns with long term stockholder interest

 

   

Pretax Income

 

  

Incentivizes to focus on profitability, exclusive of tax impact

 

Aligns with long term stockholder interest

 

   

Individual Performance

 

  

Encourages focus on the individual’s achievement of strategic objectives

 

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

Our Fiscal 2020 performance resulted in record setting profitability and well exceeded our 2020 financial plan. In addition, the Compensation Committee recognized that our ongoing investments in infrastructure allowed us to continue to capitalize on the continued low interest rate environment, which resulted in another record year of profitability for the Company, with $2.2 billion in pre-tax earnings for the year. After taking into consideration market factors and despite record financial performance and the successful navigation of the operational challenges presented by the COVID-19 pandemic, including the CARES Act forbearance regulations, the Compensation Committee determined to limit the potential cash payout levels under the program to the cash payout levels paid last year. To further reward and incentivize management in alignment with stockholder returns rather than cash incentive amounts, the Committee approved an additional stock option award at year end, as further described below under “Long-Term Equity Awards.”

The following additional factors related to management’s execution of certain strategic objectives were considered in determining and approving final performance-based cash incentives for our named executive officers: (1) the delivery of record Fiscal 2020 net income, ROE and other financial results during the ongoing COVID-19 pandemic, (2) successful navigation of operational issues resulting from the CARES Act forbearance program, (3) the implementation of initiatives to drive operational efficiency and reduce costs, (4) the growth of correspondent production, refinance recapture and purchase recapture revenue, (5) the management of current investments and development of new investment opportunities; and (6) the sustainable growth of the Company’s business operations and workforce during a time when most of the Company employees were working at home due to the ongoing COVID-19 pandemic.

Based on the overall assessment of Fiscal 2020 performance and the Chairman’s recommendations, the Compensation Committee approved the annual performance-based cash incentive amounts for Messrs. Jones, Fartaj, Chang and Grogin. In addition, based on the factors above, the Compensation Committee also approved the annual performance-based cash incentive paid to Mr. Spector.

 

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The table below summarizes the actual annual performance-based cash incentives earned during Fiscal 2020:

 

 

Name

 

  

 

Actual
Performance-Based
Cash Incentives

 

 

 

David A. Spector

 

  

 

$

 

 

6,400,000  

 

 

 

 

 

Doug Jones

 

  

 

$

 

 

4,000,000  

 

 

 

 

 

Vandad Fartaj

 

  

 

$

 

 

2,400,000  

 

 

 

 

 

Andrew S. Chang

 

  

 

$

 

 

2,400,000  

 

 

 

 

 

Jeffrey P. Grogin

 

  

 

$

 

 

1,300,000  

 

 

 

 

Long-Term Equity Awards

For Fiscal 2020, the Compensation Committee sought to increase the long term equity incentive percentage of each named executive officers’ total compensation with a mix of performance-based RSU, time-based RSUs and stock options. In determining the equity awards granted in Fiscal 2020, the Compensation Committee considered, among other factors, the recommendations of management and various reports provided by our independent compensation consultant. The Compensation Committee also considered (i) the value of the proposed equity awards; (ii) the historical equity awards previously granted to each named executive officer and the corresponding values at the time of the consideration of the 2020 grants; (iii) the value of share grants to our named executive officers providing comparable services at our industry and sector peers; (iv) the anticipated contribution by the named executive officer in future fiscal years, taking into account the role, responsibility and scope of each position and the Compensation Committee’s perception regarding the quality of the services provided by each named executive officer in carrying out those responsibilities; (v) our financial and operating performance in the past year and our perceived future prospects; (vii) the mix of equity awards to total compensation; and (vi) general market practices. The Compensation Committee considered these multiple factors in determining whether to increase or decrease the target amounts from the prior year’s equity award grants. There was no formulaic approach in the use of these various factors in determining the number of shares to award to each named executive officer. The share amounts were determined on a subjective basis, using the various factors, in the Compensation Committee’s sole discretion.

Performance-Based Restricted Stock Units

In light of investor feedback regarding our performance-based RSU program, the Compensation Committee revised the performance-based RSUs to include multiple performance goals and increased the targeted performance levels in Fiscal 2020. Fiscal 2020 performance-based RSU vesting is contingent upon the achievement of two performance goal components: return on equity and a leverage ratio modifier component based on total recourse debt to equity. These design enhancements and the Compensation Committee’s rationale are summarized below:

Fiscal 2020 Design Enhancements and Rational

 

 

PSUs

 

  

 

Fiscal 2019

 

 

 

Fiscal 2020

 

 

Rational

 

 

 

Performance Metrics

 

  

 

ROE

 

 

 

  ROE

  Leverage Ratio

 

 

 

   Aligns with stockholder feedback supporting the use of having multiple performance goals

   ROE measures a company’s profitability by revealing how much profit a company generates with the money equity holders have invested, including retained profits

   Leverage ratio mitigates risk taking to achieve our ROE and is based on total recourse debt to equity ensuring prudent risk taking and capital discipline

 

 

Performance Period

 

  

 

Three year performance period

 

 

 

Three year performance period

 

 

 

   Cumulative three year performance period provides a measure of long-term performance and achievement against long-term financial objectives

 

 

Performance Target

 

  

 

ROE = 12%

 

 

 

ROE Target = 15%

Leverage Ratio Target = 3.5x

 

 

 

   Increased ROE target by 3% in Fiscal 2020 due to Fiscal 2019 results and projected future performance

 

 

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The performance-based RSU awards granted in February 2020 provides for the award of performance-based RSUs to obtain, upon the vesting of each RSU, a variable number of shares of our common stock. The number of shares received upon vesting of performance-based RSUs is determined based on the attainment of the performance goals, subject to conditions including continued employment throughout the performance period. Vesting of the ROE performance metric is tied to the achievement of cumulative, annualized ROE metrics during the performance period, with 50% of the target amount earned if the threshold performance level is met, 100% of the target amount earned if the target performance level is met and 150% of the target amount earned if the highest performance level is met. The payout that is determined based on the above ROE performance metric is then multiplied by a factor of 66% to 125% for named executive officers depending on the actual achievement of the leverage ratio target during the performance period, for a maximum award payable of 187.5% of target shares. In addition, the payout is further multiplied by a factor of 0% to 100% for each named executive officer based on an individual effectiveness rating ranging from unsatisfactory to outstanding. A summary of the performance measures targets contained in the performance-based RSUs granted to our named executive officers during Fiscal 2020 is provided below and each of these awards is further described in the “2020 Grants of Plan-Based Awards” table:

 

 

  Fiscal 2020 PSU Awards

 

Performance-
Based
Restricted
Stock Units

 

 

Performance Component

  Performance Target  

 

% of
Targeted
Award

 

 

1. ROE (1)

 

 

 

15.0% - Cumulative Annualized ROE

 

 

100%

 

 

 

2. Leverage Ratio (2)

 

  3.5x   66% to 125%
     
   

 

3. Individual Effectiveness (3)

 

 

 

4 - Exceeds Expectations

 

 

 

0% to 100%

 

 

(1)

ROE is the amount of net income returned as an annualized percentage of average month-end equity. ROE = Net Income ÷ Average Month-End Equity ÷ Years in Measurement Period (1/1/2020 – 12/31/22).The payout scale range is 0% to 150%.

(2)

Leverage Ratio is the average of the ratio at the end of each month of the performance measurement period of the amount of total recourse indebtedness outstanding to total equity. The range of the multiplier is 66% to 125%.

(3)

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

Time-Based Restricted Stock Units

In March 2020, all of our named executive officers were awarded time-based RSUs. These time-based RSUs, which vest in three equal installments beginning on the first anniversary of the grant date, are to be settled in an equal number of shares of common stock upon vesting. The time-based RSUs are also reflected in the “2020 Grants of Plan Based Awards” table.

Stock Option Awards

In February 2020, our named executive officers were awarded non-statutory stock options. The stock option award agreement provides for the award of stock options to purchase the optioned shares. In general, and except as otherwise provided by the Compensation Committee, one-third (1/3) of the optioned shares will vest on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient’s continued service through each anniversary (with certain exceptions as specified under the award agreement or the provisions of our 2013 Plan), and each stock option will have a term of ten years from the date of grant. Additionally, the vested stock options expire (1) immediately upon termination of the holder’s employment or other association with us for cause, (2) one year after the holder’s employment or other association is terminated due to death or disability, and (3) three months after the holder’s employment or other association is terminated for any other reason.

In December 2020, the Board determined that, in light of the Company’s exceptional financial performance and success during Fiscal 2020 including record net income and revenue growth and management’s execution of its strategic and operational initiatives during the COVID-19 pandemic, and the decision to limit the cash incentive amount to under the amounts paid last year, it would award an additional non-statutory stock option on December 14, 2020 to certain employees across various levels of the Company, including certain named executive officers. In addition, the Compensation Committee determined that the stock option award aligned with its goal of increasing the amount of long term incentive awards paid out as a percentage of total compensation while limiting the cash payout levels paid to named executive officers to the cash payout levels from Fiscal 2019. The stock option awards have an exercise price of $59.68 and are fully vested at grant but are subject to certain transfer restrictions that will lapse in one-third increments on each of December 14, 2021, 2022 and 2023, subject to the recipient’s continued service through each lapse date. Additionally, the vested stock options expire (1) immediately upon termination of the holder’s employment or other association with us for cause, (2) one year after the holder’s employment or other association is terminated due to death or disability, and (3) three months after the holder’s employment or other association is terminated

 

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subject to certain transfer restrictions. The number of shares underlying the stock options for each named executive officer was as follows: 140,464 shares to Mr. Spector, 54,024 shares to Mr. Jones, 54,024 shares to Mr. Fartaj, and 56,726 shares to Mr. Chang. The stock option grants are also reflected in the “2020 Grants of Plan Based Awards” table.

The table below summarizes the grant date fair value of the long-term incentive equity awards awarded in Fiscal 2020.

 

 

Name

 

 

 

Grant Date
Fair Value of
Performance-
Based PSUs

 

    

 

Number of
Performance-
Based PSUs

 

    

 

Grant Date
Fair Value of
Time-Based
RSUs

 

    

 

Number of
Time-Based
RSUs

 

    

 

Grant Date
Fair Value
of Stock
Options

 

    

 

Number of
Stock
Options

 

    

 

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

 

 

 

D. Spector

 

 

 

$

 

 

1,125,969

 

 

 

 

  

 

 

 

 

    32,143

 

 

 

 

  

 

 

 

 

$   562,967

 

 

 

 

  

 

 

 

 

16,071

 

 

 

 

  

 

 

 

 

$3,204,163

 

 

 

 

  

 

 

 

 

        199,930

 

 

 

 

  

 

 

 

 

        $4,893,099  

 

 

 

 

 

D. Jones

 

 

 

$

 

 

574,982

 

 

 

 

  

 

 

 

 

16,414

 

 

 

 

  

 

 

 

 

$   287,491

 

 

 

 

  

 

 

 

 

      8,207

 

 

 

 

  

 

 

 

 

$1,308,503

 

 

 

 

  

 

 

 

 

84,390

 

 

 

 

  

 

 

 

 

$2,170,976  

 

 

 

 

 

V. Fartaj

 

 

 

$

 

 

449,995

 

 

 

 

  

 

 

 

 

12,846

 

 

 

 

  

 

 

 

 

$   224,998

 

 

 

 

  

 

 

 

 

6,423

 

 

 

 

  

 

 

 

 

$1,241,437

 

 

 

 

  

 

 

 

 

77,789

 

 

 

 

  

 

 

 

 

$1,916,430  

 

 

 

 

 

A. Chang

 

 

 

$

 

 

449,995

 

 

 

 

  

 

 

 

 

12,846

 

 

 

 

  

 

 

 

 

$   224,998

 

 

 

 

  

 

 

 

 

6,423

 

 

 

 

  

 

 

 

 

$1,291,451

 

 

 

 

  

 

 

 

 

80,491

 

 

 

 

  

 

 

 

 

$1,966,444  

 

 

 

 

J. Grogin

 

 

 

$

 

 

337,479

 

 

 

 

  

 

 

 

 

9,634

 

 

 

 

  

 

 

 

 

$   168,740

 

 

 

 

  

 

 

 

 

4,817

 

 

 

 

  

 

 

 

 

$   181,092

 

 

 

 

  

 

 

 

 

17,824

 

 

 

 

  

 

 

 

 

$   687,310  

 

 

 

 

Each of the performance-based and time-based RSUs has a grant date fair value of $35.03, which is based on our closing stock price on the NYSE on February 26, 2020. The stock options granted on February 26, 2020 have an exercise price of $35.03 and a Black-Scholes value of $9.47 at the date of grant. The stock options granted on December 14, 2020 have an exercise price of $59.68 and a Black-Scholes value of $18.51 at the date of grant.

Performance-Based Restricted Share Unit – Achievements

The below table summarizes the target and actual results of performance-based RSUs granted to our named executive officers on March 9, 2018 for the performance period of January 1, 2018 through December 31, 2020.

 

 

Performance-
Based
Restricted
Stock Units

 

 

Performance Component

  Performance Target  

 

% of
Targeted
Award

 

 

Actual
Performance

 

 

Actual Payout

 

 

1. PNMAC ROE (1)

 

 

 

16.4% - Cumulative Annualized ROE

 

 

100%

 

 

 

39.4%

 

 

 

130%

 

 

 

2. Individual Effectiveness (2)

 

 

 

5 - Outstanding

 

 

 

0% to 100%

 

 

 

0% to 100%

 

 

 

0% to 100%

 

 

(1)

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

(2)

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

Compensation Decisions Made in Fiscal 2021

 

 

 

The Compensation Committee conducted a comprehensive review of its annual performance-based incentive program as well as the appropriate cash and equity components of the named executive officers’ total compensation and adopted the following compensation enhancements in Fiscal 2021:

 

   

Similar to Fiscal 2020, the Compensation Committee anticipates continuing to increase the equity incentive percentage of each named executive officer’s total compensation.

 

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The Compensation Committee has revised the annual performance-based incentive program to add an objective financial performance component equal to 70% of the target annual incentive based on achieving return on equity (ROE) and a strategic award component equal to 30% of the target annual incentive based on individual strategic objectives established by the Compensation Committee in consultation with senior management. For Fiscal 2021, the Compensation Committee approved the following annual target incentives for our expected named executive officers:

 

 

Annual Target Incentive

 

David A. Spector

 

 

$3,625,000

 

 

Doug Jones

 

 

$2,000,000

 

 

Vandad Fartaj

 

 

$1,500,000

 

 

Andrew S. Chang

 

 

$1,500,000

 

 

Daniel S. Perotti

 

 

$1,000,000

 

Each named executive officer’s target annual incentive is contingent on meeting the financial goals in the below table. The failure to meet the minimum ROE financial performance threshold will result in no incentive payout, while exceeding the ROE financial performance target will result in incentive payouts over target, subject to a maximum payout cap of 300% for the financial performance component and 150% for the strategic award component. The total maximum annual incentive payable is 255% of target assuming all goals are achieved at maximum.

 

       

Annual Incentive

Objective

  Annual Incentive
Weighting%
  Below Threshold
Performance and
Potential Payout
  Threshold
Performance and
Potential Payout
  Between Threshold
and Target
Performance and
Potential Payout
 

Target

Performance and
Potential Payout

  Maximum
Performance and
Potential Payout

 

ROE

 

 

 

70%

 

 

 

ROE = <5%

Payout = 0%

 

 

 

ROE = 5%

Payout = 37.5%

 

 

 

ROE = 10%

Payout = 75%

 

 

 

ROE = 15%

Payout = 100%

 

 

 

ROE = >30%

Payout = 300%

 

 

Strategic*

 

 

 

30%

 

 

 

0%

 

 

 

37.5%

 

 

 

75%

 

 

 

100%

 

 

 

150%

 

 

Payout Percentage

 

 

 

100%

 

 

 

0%

 

 

 

37.5%

 

 

 

75%

 

 

 

100%

 

 

 

255%

 

 

*

For illustration purposes only, the strategic objective is treated as having been earned at the same proportion rate as the ROE goals for each category. Actual results may vary as the two goals are determined independently, although no payout will occur for either objective if the company’s ROE performance is below threshold. For the ROE objective, payout levels will be interpolated between defined performance levels.

 

   

Similar to Fiscal 2020, if performance exceeds target levels, the Compensation Committee may limit the annual incentive paid out in cash and consider granting additional equity awards.

Executive Compensation Objectives and Philosophy

 

 

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

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

 

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Executive Compensation Decision Making Process

 

 

Annual Compensation Process

Compensation decisions are generally made as part of a year-long review process:

 

Step 1   Step 2   Step 3   Step 4   Step 5   Step 6
         

 

Management engages with investors and reviews feedback on named executive officers compensation

 

 

Management reviews the Company’s compensation programs following a rigorous financial planning process

 

 

CEO conducts performance reviews for the other named executive officers and recommends compensation to the Compensation Committee after considering market practice

 

 

 

Compensation Committee evaluates the CEO’s performance

 

 

Pearl Meyer advises the Compensation Committee on the overall appropriateness of named executive officer compensation and the compensation programs relative to market practice

 

 

 

Compensation Committee reviews and approves all named executive officer compensation and compensation programs

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

The Role of the Outside Independent Compensation Consultant. Our Compensation Committee has the sole authority to retain, compensate and terminate any independent compensation consultant of its choosing in assessing our compensation program and determining the appropriate, competitive levels of compensation for our executive officers. Pursuant to such authority, the Compensation Committee utilized Pearl Meyer & Partners, or Pearl Meyer, as its independent compensation consultant during Fiscal 2020. Pearl Meyer has provided various services to the Compensation Committee since its engagement including the following:

 

   

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

   

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

   

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

   

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

   

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

   

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

   

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

   

Reviewed historical financial performance for peer group companies;

   

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

   

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

   

Assisted in compensation plan designs and modifications, as requested;

   

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

   

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

 

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Assessment of Outside Independent Compensation Consultant Conflicts of Interest. Under rules promulgated by the SEC, the Compensation Committee must determine, after taking into account six independence-related factors, whether any work completed by a compensation consultant raised any conflict of interest. Factors considered by the Compensation Committee include the following six factors specified by the NYSE rules: (1) other services provided to us by the compensation consultant; (2) what percentage of the compensation consultant’s total revenue is made up of fees from us; (3) policies or procedures of the compensation consultant that are designed to prevent a conflict of interest; (4) any business or personal relationships between individual consultants involved in the engagement and Compensation Committee members; (5) any shares of our common stock owned by individual consultants involved in the engagement; and (6) any business or personal relationships between our executive officers and the compensation consultant or the individual consultants involved in the engagement. For Fiscal 2020, the Compensation Committee did not identify any conflict of interest with respect to Pearl Meyer.

Peer Group and Benchmarking

 

 

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

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

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

 

     

 

Objective Criteria Considered

 

 

 

Former Peer Group

 

 

 

Revised Peer Group

 

   Companies in financial services, data processing & outsourcing services, property & casualty insurance, research & consulting services and specialty finance industries

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

   Companies with pretax income and assets within a reasonable range

   Companies with revenue within a reasonable range

   Competitors for executive talent

   Companies of comparable scope and complexity

   Companies that identify us as their direct peer

   Companies with similar pay practices

 

 

   Black Knight Financial Services, Inc.

   CoreLogic, Inc.

   Essent Group Ltd.

   Flagstar Bancorp, Inc.

   iStar Financial Inc.*

   Ladder Capital Corp.*

   MGIC Investment Corp.

   Mr. Cooper Group, Inc.

   NMI Holdings, Inc.*

   Ocwen Financial Corporation*

   OneMain Holdings, Inc.

   Radian Group Inc.

   Redwood Trust, Inc.

   Walker & Dunlop Inc.*

 

   Black Knight Financial Services, Inc.

   CoreLogic, Inc.

   Essent Group Ltd.

   Fidelity National, Inc.+

   First American Financial Corporation+

   Flagstar Bancorp, Inc.

   LendingTree, Inc.+

   MGIC Investment Corp.

   Mr. Cooper Group, Inc.

   OneMain Holdings, Inc.

   Radian Group Inc.

   Redwood Trust, Inc.

   Rocket Companies, Inc.+

   SLM Corporation+

   Zillow Group, Inc.+

 

*

Removed from Peer Group

+

Added to Peer Group

Given the Company’s market share and the fact that many of our true business competitors are either private or subsidiaries of large banks, the process for developing a peer group for us is challenging. Our goal was to identify more peers that are industry relevant, publicly-traded of similar size and complexity, and involved in related markets – ultimately increasing the number of companies in our peer group as a whole. The revised peer group was developed by screening potential peers for business comparability – measured by industry similarity (operating in real estate and investment management, preferably focused on the residential mortgage market), complexity (top 10 mortgage lender in the U.S.) and financial characteristics (profitable companies with meaningful balance sheet) – and size comparability. The selection criteria was also expanded to include companies in: financial services, data processing & outsourcing services, property &

 

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casualty insurance, and research & consulting services. As part of this expanded selection criteria, we also focused on companies that have 0.25x to 3x the combined market capitalization, revenue and assets of the Company and PennyMac Mortgage Investment Trust (NYSE: PMT), the real estate investment trust that the Company’s management team is responsible for externally managing through our investment management subsidiary. The Compensation Committee believes that this revised peer group better reflects our competitors in the industry that currently conduct similar businesses and have comparable scales of operations.

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

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

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

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

 

   

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

   

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

   

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

   

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

   

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

Executive Stock Ownership Guidelines

 

 

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

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

 

 

Executive Officer Title

  

 

Stock Ownership

Guideline

 

 

 

  Compliant  

 

 

Chief Executive Officer

 

  

 

5x

 

 

 

 

 

Other Executive Officers

 

  

 

3x

 

 

 

 

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

 

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Clawback Provisions

 

 

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

Trading Controls and Anti-Pledging and Anti-Hedging Policies

 

 

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

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

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

Employment and Change-in-Control Arrangements

 

 

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

Pursuant to the Kurland Agreement, Mr. Kurland served as the Executive Chairman of our Board through December 31, 2019, and, beginning on January 1, 2020 and until his death on January 23, 2021 served as the Non-Executive Chairman of our Board. Mr. Spector shall continue to serve as a member of our Board and as our Chairman and Chief Executive Officer and the President and Chief Executive Officer of PNMAC throughout the term of the Spector Agreement. Mr. Jones shall continue to serve as our President and Chief Mortgage Banking Officer and the Senior Managing Director and Chief Mortgage Banking Officer of PNMAC throughout the term of the Jones Agreement.

Base Salary and Incentive Compensation

The Kurland Agreement provided that from January 1, 2020 and for so long as Mr. Kurland remains on our Board as Non-Executive Chairman, Mr. Kurland will also be entitled to receive (i) annual director fees in cash in amount equal to 2.5 times the annual retainer fees of the highest paid non-employee Board member, and (ii) annual equity awards in an amount equal to 2.5 times the amount granted to any other non-employee Board member.

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

 

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

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

Other Benefits

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

Payments Upon Specific Termination Events

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

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

Consulting Services

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

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

 

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For purposes of the employment agreement, each of Mr. Spector and Mr. Jones will have “good reason” to terminate his employment agreement, as applicable, if we (or any resulting or surviving entity in the event of certain transactions) or PNMAC fail to cure any of the following events within 30 days of receipt of notice of such event(s) by Mr. Spector or Mr. Jones, as applicable, (such notice must be delivered within 90 days of the occurrence of the events constituting “good reason”): (1) materially breaches the Spector Agreement or Jones Agreement; (2) requires Mr. Spector to report to anyone other than our Board or Mr. Jones to report to anyone other than the President and Chief Executive Officer; (3) requires Mr. Spector to be based anywhere more than fifty (50) miles from the office where he is located as of the effective date of the Spector Agreement or requires Mr. Jones to be based anywhere more than fifteen (15) miles from the office where he is located as of the effective date of the Jones Agreement; (4) takes any other action which results in a material diminution or adverse change in Mr. Spector’s or Mr. Jones’ status, title, position, compensation, or responsibilities, other than an insubstantial action not taken in bad faith and remedied promptly after receipt of notice by Mr. Spector or Mr. Jones; or (5) fails to indemnify and advance all expenses to Mr. Spector or Mr. Jones in response to a proper request for indemnity and advancement.

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

 

   

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

 

   

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

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

 

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Compensation Tables

2020 Summary Compensation Table

 

 

The following “2020 Summary Compensation Table” presents compensation earned by our principal executive officer, our principal financial officer and our next three most highly compensated persons serving as executive officers as of the end of Fiscal 2020. We refer to these executive officers as our “named executive officers.”

 

Name and Principal Position(1)

 

 

Year

 

   

Salary

($)

 

   

Bonus

($)(2)

 

   

Stock
Awards

($)(3)

 

   

Option

Awards

($)(4)

 

   

 

All Other

Compensation

($)

 

   

Total

($)

 

 

 

David A. Spector

    2020       1,000,000       6,400,000       1,688,936       3,204,163       82,229 (5)      12,375,328  

Chairman and

    2019       900,000       7,155,000       1,526,128       478,512       64,617       10,124,258  

Chief Executive Officer

    2018       750,000       2,900,000       1,549,937       501,411       76,271       5,777,619  

 

Doug Jones

    2020       600,000       4,000,000       862,473       1,308,503       277,687 (5)      7,048,663  

President and

    2019       550,000       4,340,000       763,053       239,256       269,130       6,161,439  

Chief Mortgage Banking Officer

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

 

Vandad Fartaj

    2020       400,000       2,400,000       674,993       1,241,437       362,128 (5)      5,078,558  

Senior Managing Director and

    2019       350,000       2,699,000       618,725       193,999       345,096       4,206,820  

Chief Investment Officer

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

 

Andrew S. Chang

    2020       400,000       2,400,000       674,993       1,291,451       293,896 (5)      5,060,340  

Senior Managing Director and

    2019       325,000       2,699,000       612,606       192,084       283,860       4,112,550  

Chief Operating Officer

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

 

Jeffrey P. Grogin

    2020       350,000       1,300,000       506,219       181,092       26,694 (5)      2,364,005  

Senior Managing Director and

             

Chief Enterprise Operations Officer

                                                       

 

(1)

Reflects the named executive officer’s current title and not their title as of December 31, 2020.

(2)

The amounts in this column represent the total amount of cash incentives earned by the named executive officers for Fiscal 2020.

(3)

The amounts shown in this column in respect of 2020, 2019 and 2018 represent the grant date fair value, as determined in accordance with ASC 718, of time-based RSUs awarded on February 26, 2020, March 15, 2019 and March 9, 2018 in the amounts of: (16,071, 22,195, and 21,174 for Mr. Spector; 8,207, 11,097, and 10,587 for Mr. Jones; 6,423, 8,998 and 8,469 for Mr. Fartaj; 6,423, 8,909, 8,469 for Mr. Chang, respectively; and 4,817 for Mr. Grogin on February 26, 2020. Also includes the grant date fair value, as determined in accordance with ASC 718, of the (a) performance-based RSUs awarded on February 26, 2020, March 15, 2019 and March 9, 2018 in the amounts of 32,143, 44,390 and 42,348 for Mr. Spector; 16,414, 22,195 and 21,174 for Mr. Jones; 12,846, 17,997 and 16,939 for Mr. Fartaj; 12,846, 17,819 and 16,939 for Mr. Chang; and 9,634 for Mr. Grogin, respectively, pursuant to our 2013 Plan. See “—2020 Outstanding Equity Awards at Fiscal Year-End” below. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service vesting conditions. For more information on the assumptions used in our estimates of value, please refer to Note 20—Stock-based Compensation in our Annual Report on Form 10-K filed on February 25, 2021. The value of the performance-based RSUs awarded on February 26, 2020, March 15, 2019 and March 9, 2018, assuming that the highest level of performance conditions will be achieved and based on a grant date fair value per share of $35.03, $22.92 and $24.40, is $2,111,188, $1,322,644 and $1,343,269 for Mr. Spector; $1,078,083, $661,311 and $671,634 for Mr. Jones; $843,733, $536,236 and $537,288 for Mr. Fartaj, and $843,733, $530,919 and $537,288 for Mr. Chang; and $632,747 for Mr. Grogin, respectively. The amounts reported in this column reflect the accounting cost for these RSUs and do not correspond to the actual economic value that may be received by upon vesting and/or settlement of the RSUs.

(4)

The amounts shown in this column represent the grant date fair value, as determined in accordance with ASC 718, of the nonstatutory stock options awarded on December 14, 2020, February 26, 2020, March 15, 2019 and March 9, 2018 in the amounts of 140,464, 59,466, 55,488 and 52,935 for Mr. Spector; 54,024, 30,366, 27,744 and 26,467 for Mr. Jones; 54,024, 23,765, 22,496 and 21,174 for Mr. Fartaj; 56,726, 23,765, 22,274 and 21,174 for Mr. Chang; respectively, pursuant to our 2013 Plan. See “—2020 Outstanding Equity Awards at Fiscal Year-End” below. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service vesting conditions. For more information on the assumptions used in our estimates of value, please refer to Note 20—Stock-based Compensation in our Annual Report on Form 10-K filed on February 25, 2021. In addition, the amounts shown in this column represent the grant date fair value, as determined in accordance with ASC 718, of the nonstatutory stock options awarded on February 26, 2020 in the amount of 17,824 for Mr. Grogin pursuant to our 2013 Plan. See “—2020 Outstanding Equity Awards at Fiscal Year-End” below. The amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic value that may be received by the directors upon vesting and/or settlement of the stock options.

(5)

With respect to Mr. Spector, All Other Compensation includes $26,555 in insurance premiums, $18,000 in automobile allowance and $37,397 for tax and financial counseling advice. In addition, time-based and performance-based restricted share units were awarded by PMT to Mr. Spector during Fiscal 2020 consistent with its compensation program and philosophy. These restricted share units were granted on March 03, 2020 and have grant date fair values, as determined in accordance with ASC 718, of $747,986 and are not included in All Other Compensation for Mr. Spector.

 

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With respect to Mr. Jones, All Other Compensation includes $15,361 in insurance premiums, $11,449 in 401(k) plan contributions and $249,977 in time-based and performance-based restricted share units awarded by PMT to Mr. Jones for Fiscal 2020, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense.

 

    

With respect to Mr. Fartaj, All Other Compensation includes $27,363 in insurance premiums, $10,790 in 401(k) plan contributions, $22,816 for tax and financial counseling advice and $299,981 in time-based and performance-based restricted share units awarded by PMT to Mr. Fartaj for Fiscal 2020, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense.

 

    

With respect to Mr. Chang, All Other Compensation includes $9,062 in insurance premiums, $11,763 in 401(k) plan contribution, $22,816 for tax and financial counseling advice and $249,977 in time-based and performance-based restricted share units awarded by PMT to Mr. Chang for Fiscal 2020, consistent with its compensation program and philosophy, and recorded by PNMAC as a portion of its compensation expense.

 

    

With respect to Mr. Grogin, All Other Compensation includes $26,555 in insurance premiums.

 

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2020 Grants of Plan-Based Awards

 

 

The following table provides information about plan-based awards granted under our 2013 Plan to our named executive officers in Fiscal 2020:

 

           

 

Estimated Future Payouts
Under Equity Incentive Plan Awards(1)

    

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

 

    

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

 

    

Exercise
Price of
Option
Awards
($/sh)

 

    

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

 

 

Name

 

  

Grant
Date

 

    

Threshold
(#)

 

    

Target
(#)

 

    

Maximum
(#)

 

 

David A. Spector

                       

PSUs

     02/26/20        10,714        32,143        60,268                 1,125,969  

RSUs

     02/26/20                 16,071              562,967  

Stock Options

     02/26/20                    59,466        35.03        604,175  

Stock Options

     12/14/20                    140,464        59.68        2,599,989  

Doug Jones

                       

PSUs

     02/26/20        5,471        16,414        30,776                 574,982  

RSUs

     02/26/20                 8,207              287,491  

Stock Options

     02/26/20                    30,365        35.03        308,519  

Stock Options

     12/14/20                    54,024        59.68        999,984  

Vandad Fartaj

                       

PSUs

     02/26/20        4,282        12,846        24,086                 449,995  

RSUs

     02/26/20                 6,423              224,998  

Stock Options

     02/26/20                    23,765        35.03        241,452  

Stock Options

     12/14/20                    54,024        59.68        999,984  

Andrew S. Chang

                       

PSUs

     02/26/20        4,282        12,846        24,086                 449,995  

RSUs

     02/26/20                 6,423              224,998  

Stock Options

     02/26/20                    23,765        35.03        241,452  

Stock Options

     12/14/20                    56,726        59.68        1,049,998  

Jeffrey P. Grogin

                       

PSUs

     02/26/20        3,211        9,634        18,063                 337,479  

RSUs

     02/26/20                 4,817              168,740  

Stock Options

     02/26/20                                            17,824        35.03        181,092  

 

(1)

Represents the potential payout range of performance-based RSUs granted in Fiscal 2020. Awards vest based on achieving ROE and leverage ratio goals in fiscal years 2020 through 2022. The combined maximum payout under the performance goals is 187.5% of the target award. If ROE for a fiscal year is less than the threshold ROE, no portion of the granted RSUs will become vested. In addition to the performance conditions, the named executive officers must satisfy a service condition in order for the award to vest.

(2)

One-third (1/3) of the nonstatutory stock options granted on February 26, 2020 will vest on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient’s continued service through each anniversary. The stock option award granted on December 14, 2020 was fully vested at grant but is subject to certain transfer restrictions that will lapse in one-third increments on each of December 14, 2021, 2022 and 2023, subject to the recipient’s continued service through each lapse date. The exercise price of these stock options is equal to the closing price of our common stock on the NYSE on the grant date.

(3)

Represents the grant date fair value, as determined in accordance with ASC 718, of time-based RSUs, performance-based RSUs and nonstatutory stock options awarded during Fiscal 2020. There is no estimation of forfeitures included in the grant date fair value of the stock options.

 

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2020 Outstanding Equity Awards at Fiscal Year-End

 

 

The following table provides information about outstanding equity awards of our named executive officers as of the end of Fiscal 2020:

 

           

 

Option Awards(1)

    

 

Stock Awards

 

Name

 

  

Grant

Date

 

    

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

 

    

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

 

    

Option

Exercise

Price

($/sh)

 

    

Option

Expiration

Date

 

    

Number
of

Unearned

Shares or

Units of

Stock

Granted

That Have

Not
Vested
(#)

 

   

Market
Value of
Unearned

Shares
or Units
of Stock

Granted

That

Have Not
Vested
($)
(2)

 

 

 

David A. Spector

     12/14/2020               140,464        59.68        12/13/2030               
     02/26/2020               59,466        35.03        02/25/2030        48,214 (3)      3,163,803  
     03/15/2019        18,496        36,992        22.92        03/14/2029        59,187 (4)      3,883,851  
     03/09/2018        35,290        17,645        24.40        03/08/2028        49,406 (5)      3,242,022  
     03/06/2017        69,252               18.05        03/05/2027               
     03/07/2016        71,161               11.28        03/06/2026               
     03/03/2015        61,120               17.52        03/02/2025               
     02/26/2014        72,301               17.26        02/25/2024               
    

 

06/13/2013

 

 

 

    

 

40,735

 

 

 

    

 

 

 

 

    

 

21.03

 

 

 

    

 

06/12/2023

 

 

 

    

 

 

 

 

   

 

 

 

 

 

Doug Jones

     12/14/2020               54,024        59.68        12/13/2030               
     02/26/2020               30,366        35.03        02/25/2030        24,621 (3)      1,615,630  
     03/15/2019        9,248        18,496        22.92        03/14/2029        29,593 (4)      1,941,893  
     03/09/2018        17,644        8,823        24.40        03/08/2028        24,703 (5)      1,621,011  
     03/06/2017        34,626               18.05        03/05/2027               
     03/07/2016        27,771               11.28        03/06/2026               
     03/03/2015        23,829               17.52        03/02/2025               
     02/26/2014        28,216               17.26        02/25/2024               
    

 

06/13/2013

 

 

 

    

 

15,882

 

 

 

    

 

 

 

 

    

 

21.03

 

 

 

    

 

06/12/2023

 

 

 

    

 

 

 

 

   

 

 

 

 

 

Vandad Fartaj

     12/14/2020               54,024        59.68        12/13/2030               
     02/26/2020               23,765        35.03        02/25/2030        19,269 (3)      1,264,432  
     03/15/2019        7,498        14,998        24.40        03/14/2029        23,996 (4)      1,574,618  
     03/09/2018        14,116        7,058        24.40        03/08/2028        19,762 (5)      1,296,782  
     03/06/2017        27,700               18.05        03/05/2027               
     03/07/2016        27,771               11.28        03/06/2026               
     03/03/2015        23,829               17.52        03/02/2025               
     02/26/2014        28,216               17.26        02/25/2024               
    

 

06/13/2013

 

 

 

    

 

15,882

 

 

 

    

 

 

 

 

    

 

21.03

 

 

 

    

 

06/12/2023

 

 

 

    

 

 

 

 

   

 

 

 

 

 

Andrew S. Chang

     12/14/2020               56,726        59.68        12/13/2030               
     02/26/2020               23,765        35.03        02/25/2030        19,269 (3)      1,264,432  
     03/15/2019        7,424        14,850        22.92        03/14/2029        23,759 (4)      1,559,066  
     03/09/2018        14,116        7,058        24.40        03/08/2028        19,762 (5)      1,296,782  
     03/06/2017        27,700               18.05        03/05/2027               
     03/07/2016        27,771               11.28        03/06/2026               
     03/03/2015        23,829               17.52        03/02/2025               
     02/26/2014        28,216               17.26        02/25/2024               
    

 

06/13/2013

 

 

 

    

 

15,882

 

 

 

    

 

 

 

 

    

 

21.03

 

 

 

    

 

06/12/2023

 

 

 

    

 

 

 

 

   

 

 

 

 

 

Jeffrey P. Grogin

     02/26/2020               17,824        35.03        02/25/2030        14,451 (3)      948,275  
     03/15/2019        6,019        12,038        22.92        03/14/2029        19,260 (4)      1,263,841  
     03/09/2018        11,469        5,735        24.40        03/08/2028        16,057 (5)      1,053,660  
      

 

03/06/2017

 

 

 

    

 

7,502

 

 

 

    

 

 

 

 

    

 

18.05

 

 

 

    

 

03/05/2027

 

 

 

    

 

 

 

 

   

 

 

 

 

 

(1)

One-third (1/3) of the nonstatutory stock options granted on February 26, 2020 will vest on each of the first, second, and third anniversaries of the vesting commencement date, subject to the recipient’s continued service through each anniversary. The stock option award granted on December 14, 2020 was fully

 

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vested at grant but subject to certain transfer restrictions that will lapse in one-third increments on each of December 14, 2021, 2022 and 2023, subject to the recipient’s continued service through each lapse date. The exercise price of these stock options is equal to the closing price of our common stock on the NYSE on the grant date.

(2)

Per share value of stock awards is $65.62 based on the closing price of our common stock on the NYSE on December 31, 2020.

(3)

The indicated number of unearned units consists of time-based RSUs and performance-based RSUs with a performance period that ends on December 31, 2022 and is described above under the heading “—Elements of our Executive Compensation Program—Annual Long-Term Equity Awards.” Based on current performance levels, the performance-based RSUs are reported at the target payout level.

(4)

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

(5)

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

 

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2020 Option Exercises and Stock Vested

 

 

The following table provides information regarding exercises of options to purchase shares of common stock and stock awards (RSUs and PSUs) that vested for our named executive officers during Fiscal 2020:

 

    

 

Option Awards

    

 

Stock Awards(1)

 

Name

 

  

Number of
Shares Acquired
on Exercise

(#)

 

    

Value Realized
on Exercise

($)

 

    

Number of
Shares Acquired
on Vesting

(#)

 

    

Value Realized
on Vesting
($)
(2)

 

 

 

David A. Spector

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

78,742

 

 

 

 

  

 

 

 

 

4,257,106

 

 

 

 

 

Doug Jones

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

39,371

 

 

 

 

  

 

 

 

 

2,128,553

 

 

 

 

 

Vandad Fartaj

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

31,536

 

 

 

 

  

 

 

 

 

1,703,959

 

 

 

 

 

Andrew S. Chang

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

31,506

 

 

 

 

  

 

 

 

 

1,703,085

 

 

 

 

 

Jeffrey P. Grogin

 

  

 

 

 

 

110,702

 

 

 

 

  

 

$

 

 

2,691,592

 

 

 

 

  

 

 

 

 

25,593

 

 

 

 

  

 

 

 

 

1,383,584

 

 

 

 

 

(1)

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

 

    

 

RSUs

    

 

PSUs

 

Name

  

Number of
Shares Acquired
on Vesting

(#)(1)

 

    

Value Realized
on Vesting

($)

 

    

Number of
Shares Acquired
on Vesting

(#)(2)

 

    

Value Realized
on Vesting

($)

 

 

 

David A. Spector

 

  

 

 

 

 

23,690

 

 

 

 

  

 

 

 

 

825,715

 

 

 

 

  

 

 

 

 

55,052