May 1, 2024
Dear Stockholders,
On behalf of the Compensation Committee of the Board of Directors of Dynex
Capital, Inc. ("the Company" or "Dynex"), we are writing to provide you with
additional information to supplement the material in the Company's proxy
statement ("Proxy Statement") for use at our 2024 Annual Meeting of
Stockholders (the "Annual Meeting") to be held on Friday, May 17, 2024 at 9:00
am Eastern Time. Specifically, we would like to provide additional context
around the Company's executive compensation program that we believe will be
helpful for stockholders.
Summary
.
Our Compensation Committee works with
Ferguson Partners Consulting L.P. ("FPC") as a compensation consultant to
select an appropriate peer group for the Company.
Our peer group consists of internally managed public residential mortgage real
estate investment trusts ("REITs") that have similar market capitalization
(market capitalization correlates closely with capital in the REIT industry),
that are similar to us based on business strategy, asset class focus, and the
executives of the peers are required to have comparable skills and experience
as the Company's executives. We have used this peer group consistently over
the years, with appropriate updates, and we believe it properly correlates
with the Company's business.
.
In 2023, we renegotiated the employment contracts of Byron Boston, our CEO,
and Smriti Popenoe, our President and CIO, in connection with Mr. Boston's
assumption of the Chairman title, while continuing as CEO, and Ms. Popenoe's
promotion to President and CIO. In that process, the
Compensation Committee increased their salaries and made a one-time bridge
equity grant of restricted stock units ("RSUs"). The RSU grants were a
one-time grant designed to further align compensation with the median
compensation of the Company's peer group,
provide leadership stability for the Company and its shareholders, and provide
appropriate incentives for the executive officers to focus on important
strategic initiatives of the Company during the next several years as
disclosed in the Proxy Statement.
How we develop our peer group
In determining the compensation of the Company's executive officers, the
Compensation Committee engaged the services of FPC as a compensation
consultant to assist the Committee in determining appropriate compensation
levels for the executive officers using the executive compensation structures
and the financial performance of a group of comparable companies. Our
methodology for choosing peers, and the companies in the current peer group,
have not materially changed in recent years.
The Company's peer group focuses principally on internally managed public
residential mortgage REITs that have similar market capitalization, that are
similar to us based on business strategy, asset class focus, and size, and the
executives of which are required to have similar skills and experience as our
executives. As an internally managed public mortgage REIT, capital is an
important metric in assessing the Company's value. In the REIT industry,
market capitalization correlates closely to capital. We would like to note
that, for our business, capital is a more important financial metric for
determining our peers than revenue. Capital indicates how much risk the
management team is
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managing and the size of the Company's portfolio. Revenue can be influenced by
operational or accounting factors that may not reflect the size and scope of
the business or the complexity of the Company's operations. A peer group using
solely revenue as a screening tool would result in a peer group that may not
resemble the Company's direct competitors.
To attract and retain executives with the necessary skill sets and expertise
to operate a company like Dynex, we believe it is imperative the Compensation
Committee recognizes the metrics that are relevant in the REIT industry and
benchmarks against a relevant peer group developed utilizing those metrics.
The peer group used by our Compensation Committee, as recommended by FPC, is
generally comprised of 5 to 10 companies that have comparable market
capitalization within a range and are direct competitors or who are
industry-relevant. The Compensation Committee determined to exclude externally
managed mortgage REITs from our peer group due to the limited publicly
available comparative compensation data for their executives.
Peer Group Developed by the Compensation Committee and FPC
Name Sector / Description Capital $ in Millions
(as of 12/31/2023)
Chimera Investment Corporation Mortgage REIT $2,558.9
Hannon Armstrong Sustainable Infrastructure Capital, Inc. Infrastructure REIT $2,141.6
New York Mortgage Trust, Inc. Mortgage REIT $1,628.1
Redwood Trust, Inc. Mortgage REIT $1,202.7
Granite Point Mortgage Trust, Inc. Mortgage REIT $859.0
MFA Financial, Inc. Mortgage REIT $1,899.9
PennyMac Mortgage Investment Trust Mortgage REIT $1,957.1
Two Harbors Investment Corp. Mortgage REIT $2,203.4
Dynex Capital Mortgage REIT $870.7
How we set executive pay using our peers for 2023
Throughout the most recent contract period, which ended in 2023, the
Compensation Committee monitored the target compensation of the Company's
peers. In renegotiating the CEO's and CIO's contracts in 2023 in connection
with Mr. Boston's
assumption of the Chairman title, while continuing as CEO, and Ms. Popenoe's
promotion to President and CIO
, the Compensation Committee noted that their compensation had fallen below
the median target compensation of the peer group. Based on the experience and
performance of these executives, the Compensation Committee determined that it
was appropriate for Mr. Boston and Ms. Popenoe to receive salary increases.
The adjustments were made to move Ms. Popenoe and Mr. Boston closer to the
median 2022 salary for the peer group based on the analysis reviewed by the
Compensation Committee. Mr. Colligan's base salary was set at an annualized
rate of $500,000 when he joined the Company in July 2022 and remained the same
for 2023.
In connection with the contract negotiation, Ms. Popenoe and Mr. Boston were
each granted RSUs with a market value of $1.5 million in September 2023 to
bridge the gap between their former total compensation, which was below the
median of the Company's peers, and the new total compensation, which is now
closer in line with such peers. These bridge grants were one-time awards that,
for 2023 only, changed the overall proportion of RSUs and performance share
units (PSUs) granted in a year from the normal ratio of 60% PSU / 40% RSU to
30% PSU / 70% RSU for our CEO and 26% PSU / 74% RSU for our President and CIO.
The bridge grants were made to align compensation with peer companies, and
they are not intended to recur each year. Beginning in 2024, Mr. Boston's, Ms.
Popenoe and Mr. Colligan's equity targets were increased to be in line with
peers going forward. We expect 2024 equity compensation grants to be based on
our customary ratio of 60% PSU and 40% RSU.
The following table compares the 2022 compensation of CEOs of our peer group
to the 2022 compensation of our CEO, in each case based on the proxy
statements filed in 2023, and illustrates that our CEO's 2022 compensation was
significantly below its peers:
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Peer Name Ticker 2022 Base Salary 2022 Annual Incentive 2022 Long-Term Incentive 2022 Total
Chimera Investment Corporation CIM $750,000 $3,712,500 $1,463,378 $5,925,878
Redwood Trust RWT $900,000 $450,000 $4,000,000 $5,350,000
Two Harbors Investment Corp. TWO $875,000 $1,241,275 $2,051,674 $4,167,949
PennyMac Mortgage Investment Trust PMT $1,000,000 $3,980,000 $5,589,092 $10,569,092
MFA Financial MFA $800,000 $2,250,000 $3,200,032 $6,250,032
Hannon Armstrong HASI $825,000 $2,747,250 $4,430,369 $8,002,619
New York Mortgage Trust NYMT $825,000 $1,242,500 $2,397,554 $4,465,054
Granite Point Mortgage Trust GPMT $1,000,000 $500,000 $2,249,979 $3,749,979
25th Percentile $818,750 $1,055,956 $2,200,403 $4,390,778
Median $850,000 $1,746,250 $2,798,793 $5,637,939
Average $871,875 $2,015,441 $3,172,760 $6,060,075
75th Percentile $925,000 $2,988,563 $4,107,592 $6,688,179
Dynex Capital Inc. DX $800,000 $1,824,444 $1,480,618 $4,105,062
As shown in our Proxy Statement, the comparable 2023 compensation for our CEO
and President and CIO are as follows:
Dynex Capital Inc. 2023 Base Salary 2023 Annual Incentive 2023 Long-Term Incentive 2023 Total
CEO $850,000 $2,269,800 $2,931,062 $6,050,862
President and CIO $750,000 $2,017,600 $2,595,663 $5,363,263
Our confidence in our program
Dynex has historically had significant stockholder support of Say-on-Pay
proposals in recent years, with 92% support on compensation matters in 2022
and 2023. With the exception of the bridge grants and compensation increases
in 2023, we have not materially changed the structure of our program in recent
years. We continue to believe our pay, both in terms of target opportunity and
design, is aligned with our appropriately constructed peer group.
As we discussed above, the compensation increases and bridge grants in 2023
were made to align CEO and CIO compensation with peers and were granted
concurrently with the CEO and CIO contract negotiations. Both executives took
on new roles in 2023 as part of our strategic plan. Our CEO assumed the
Chairman title and our President and CIO was promoted from the Co-CIO
position. After their appointment, Dynex successfully executed a board
refreshment process, which is discussed in the Proxy Statement. The Board and
Compensation Committee believe it important to provide leadership stability
for Dynex and its stockholders, and to provide appropriate incentives for the
executive officers to focus on important strategic initiatives for Dynex.
We thank you for your continued support and request that you
vote "FOR" Proposal 2: Advisory Vote to Ratify Named Executive Officers'
Compensation ("Say on Pay") at the upcoming 2024 Annual Meeting.
Sincerely,
The Compensation Committee
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