BRMK Broadmark Realty Capital Inc

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes the material elements of our executive compensation program, how the program is designed to support the achievement of our key strategic and financial objectives, and the compensation decisions our Compensation Committee (for purposes of this Compensation Discussion and Analysis, we refer to the Compensation Committee as our “Committee”) made under the program for our named executive officers. For 2022, our named executive officers consist of:

Compensation Philosophy and Objectives

Our executive compensation program is designed to achieve the following objectives:

Our Committee believes strongly in linking compensation to corporate performance. The annual incentive awards are primarily based on corporate performance and a substantial portion of the long-term equity incentive awards for our named executive officers depends on our corporate performance. Our Committee also recognizes individual performance in making its executive compensation decisions. Our Committee believes this is a well-designed program overall to attract, motivate and retain highly skilled executives whose performance and contributions benefit our Company and our stockholders.

Our Committee does not have a strict policy for allocating a specific portion of compensation to our named executive officers between cash and non-cash or short-term and long-term compensation. Instead, our Committee considers how each component promotes retention and/or motivates performance by the executive officer. Our Committee believes it utilizes the right blend of cash and equity to provide appropriate incentives for executive officers while aligning their interests with those of our stockholders and encouraging the executive officers’ long-term commitment to our Company.

Role of the Compensation Committee

Our Committee reviews and approves the compensation for our executive officers, reviews our overall compensation structure and philosophy and administers certain of our employee benefit plans and our equity compensation plan, with authority to authorize awards under our incentive plans. In addition, the independent directors of our Board review and approve the compensation of our Chief Executive Officer but are not required to separately approve equity compensation grants.

Role of Management

Management, under the leadership of our Chief Executive Officer, develops our Company’s strategy and corresponding internal business plans, which our executive compensation program is designed to support. Our Chief Executive Officer also provides our Committee with his evaluation of the performance of and his recommendations regarding compensation for his direct reports, including the other named executive officers.

Role of Compensation Consultant

In late 2021, our Committee retained FW Cook as its independent compensation consultant. In engaging FW Cook, our Committee reviewed and considered factors disclosed by FW Cook relating to its independence and any potential conflicts. FW Cook does not provide other services to our Company or its affiliates, and FW Cook also reported that it did not have other business or personal relationships with our named executive officers or members of our Committee. After consideration of the various independence factors, the Committee determined that its engagement of FW Cook did not raise any conflicts of interest.

Role of Data for Peer Companies

Our Committee reviews compensation practices at peer companies to inform itself and aid it in its decision-making process so it can establish compensation programs that it believes are reasonably competitive. In late 2021 and early 2022, our Committee worked with FW Cook to select a peer group of publicly traded companies, against which such consultant conducted a competitive analysis of our executive compensation program to inform the Committee’s decisions on target pay opportunities and program design for 2022. The peer group was selected based on the following criteria (although not all of the peer companies met all criteria):

The peer group selected by our Committee in 2022 was comprised of the following 17 publicly traded companies:

Our Committee does not use peer group data as the sole determining factor in setting compensation because each officer’s role and experience is unique. Rather, peer group data was used as a general guideline. Our Committee believes that ultimately the decision as to appropriate compensation for a particular officer should be made based on a full review of that officer’s and our Company’s performance.

Our Compensation Opportunities, Decisions and Outcomes For 2022

Compensation opportunities for each named executive officer consisted of a base salary, an annual bonus opportunity, and long-term equity incentives, each of which is described in more detail below.

Base Salaries for 2022

Based on a review conducted by the independent compensation consultant of executive compensation at the peer group of companies in connection with our Committee’s annual review of executive compensation, the 2021 annual base salaries of Messrs. Schneider, Boparai and Hirsty were determined to be substantially below market for the Company’s peer group. Based upon such conclusion, our Committee approved increases in the annual base salaries of Messrs. Schneider, Boparai and Hirsty, in the amounts of $407,000, $402,000 and $314,000, respectively, effective as of January 1, 2022.

Mr. Ward’s annual base salary of $650,000 was established in February 2022, as part of our efforts to recruit Mr. Ward to join the Company as our new Chief Executive Officer.

In November 2022, Messrs. Pyatt and Luebbers were appointed Interim Chief Executive Officer and Interim President, respectively, each with a base salary of $325,000, reflecting the Committee’s determinations based on the interim natures of their roles and a desire to have their base salaries on a combined basis not exceed Mr. Ward’s prior base salary, given the Company’s focus on capital preservation.

Annual Incentives for 2022

Each of our executive officers serving in March 2022 had a target annual incentive opportunity, expressed as a percentage of base salary. For 2022, the Committee established the target bonus opportunity of 150% of base salary for Mr. Ward and 100% of base salary for each of Messrs. Schneider, Boparai and Hirsty. Neither Mr. Pyatt nor Luebbers were employed by the Company in March 2022, and neither participated in the annual cash bonus plan for 2022.

Our Committee set Mr. Ward’s target bonus at a higher percentage of annual base salary than the other named executive officers because of his position as the Company’s Chief Executive Officer, as well as to incentivize him to join the Company. Actual annual incentive bonus payments for 2022 for Mr. Ward could range from 0% to 225% of Mr. Ward’s base salary and from 0% to 150% of the base salary for the other officers eligible to receive annual incentive bonus payments (such officers, together with Mr. Ward, were eligible to receive from 0% to 150% of their target bonus), with actual payment amounts determined based on our Committee’s assessment of annual performance against the objectives established for the year.

Under our 2022 annual cash bonus program for all of the named executive officers, our Committee evaluated performance against objectives established when the program was approved by our Committee in March 2022. For 2022, a Distributable EPS measure determined 50% of each named executive officer’s earned bonus; the remaining 50% was based on our Committee’s qualitative assessment of certain strategic performance measures and the officer’s individual performance.

Distributable EPS (which is an abbreviation for Distributable Earnings per Share) means net income attributable to common stockholders, adjusted for: (i) impairment recorded on our loans, investments in real property and goodwill; (ii) unrealized gains or losses on our investments (including provision for credit losses) and warrant liabilities; (iii) non-capitalized transaction-related and other one-time expenses; (iv) non-cash stock-based compensation; (v) depreciation and amortization including amortization of our intangible assets; and (vi) deferred taxes, which are subject to variability and generally not indicative of future economic performance or representative of current operations. Distributable EPS is the key measure used by management and our Board to track the operating performance of our assets and compare operating results between periods. To qualify as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and excluding net capital gains). Given these requirements and our belief that dividends are generally one of the principal reasons that stockholders invest in our common stock, we generally intend to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our Board. Distributable EPS has been one of many factors considered by our Board of Directors in declaring dividends and, while not a direct measure of taxable income, over time, the measure can be considered a useful indicator of our dividends. Distributable EPS is not a measure presented in accordance with accounting principles generally accepted in the United States (“GAAP”) and excludes certain recurring items, such as unrealized gains and losses (including provision for credit losses) and non-capitalized transaction-related expenses, because they are not considered by management to be part of our primary operations. Such measure does not represent and should not be considered as a substitute for, or superior to, net income or as a substitute for, or superior to, cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly entitled measures reported by other companies.

Actual Distributable EPS performance for 2022 was $0.52, which was below the threshold performance level, and accordingly, no payout was made with respect to this metric.

2022 Strategic Goals and Payouts-Weighted 50% of Total Payout Opportunity

Fifty percent of each officer’s total annual incentive opportunity for 2022 was based on the Committee’s qualitative assessment, including among other things, the relative achievement of the following strategic goals and the officer’s individual performance towards those goals:

The Committee assessed the achievement of the above goals and determined that (i) the Default Resolution and General and Administrative Expense Containment goals were not achieved, (ii) the Profile of Loan Originations and Purposes and Values goals were achieved, and (iii) the overall Strategic Goals metric was achieved at the 80% level for Messrs. Boparai and Hirsty, as they were the only participants in the 2022 annual cash bonus program that were employed by the Company at fiscal year-end.

With respect to Mr. Boparai: In determining Mr. Boparai’s individual performance-based bonus, our Committee considered factors including that Mr. Boparai:

With respect to Mr. Hirsty:

Long-Term Equity Incentives for 2022

Our long-term equity incentive program is an important means to align the interests of our executive officers and our stockholders, to encourage our executive officers to adopt a longer-term perspective and to reward them for creating stockholder value.

In March 2022, our Committee approved long-term equity incentives for Messrs. Ward, Schneider, Boparai and Hirsty. The 2022 long-term equity incentive program consisted of two grant-types:

The number and dollar value of the RSUs and PRSUs granted to Messrs. Ward, Schneider, Boparai and Hirsty in 2022 are set forth in the table below.

Service-Based RSUs. In general, the RSUs awards to executive officers vest one-third per year of service to promote retention and further alignment of our officers’ interests with those of our stockholders. RSUs are payable in common stock as soon as administratively feasible following vesting. The RSU agreements provide for accelerated vesting if the officer dies or becomes disabled while employed by us, or if in connection with or within 24 months following a “Change in Control” the officer’s employment is terminated by the Company without “cause” (defined in “Executive Officer Termination Benefits” below). In addition, pursuant to the terms of the 2019 Stock Incentive Plan, if a Change in Control (as defined in the 2019 Stock Incentive Plan) occurs and the acquiring or surviving company does not assume the RSUs, then the RSUs will become fully vested. RSUs awarded in 2021 and later also provide for accelerated vesting if the officer resigns for “good reason” (defined in “Executive Officer Termination Benefits” below) within 30 days before or 24 months following a Change in Control.

Performance-Based RSUs. The PRSUs granted in 2022 are generally earned at the end of the three fiscal year period ending December 31, 2024 based on the Company’s level of achievement of total stockholder return (“TSR”) relative to the TSR (“Relative TSR”) of the member companies of the FTSE NAREIT Mortgage REITs Index (FNMR) that are categorized as “Commercial Financing” REITs for the three-year performance period. TSR means the change in a company’s stock price over the performance period, as adjusted for reinvested dividends. A variable number of shares of common stock will be earned based on the level of achievement of the Relative TSR goals, with 50% of the PRSUs being earned if Relative TSR is achieved at the threshold performance level (25th percentile of the Commercial Financing REIT group), 100% of the PRSUs being earned if Relative TSR is achieved at the target performance level (50th percentile of the Commercial Financing REIT group) and 150% of the PRSUs being earned if Relative TSR is achieved at or above the maximum performance level (75th percentile of the Commercial Financing REIT group). If Relative TSR falls between the threshold, target and maximum performance levels, the number of PRSUs earned will be determined by linear interpolation. If relative TSR is below the threshold performance level, no PRSUs will be earned. Notwithstanding the foregoing, PRSUs will not be earned above the target performance level if the Company’s absolute TSR for the performance period is negative.

The number of PRSUs so earned will normally vest and be paid promptly following the end of the three-year performance period, subject to continued service through the end of the three-year performance period with exceptions for death, disability and termination by the Company without cause or resignation by the officer for good reason within 30 days prior to or following a Change in Control. In the event of a Change in Control, if the acquiring or surviving company in a Change in Control does not assume the PRSUs, the number of earned PRSUs will be determined based on Relative TSR as of the date of the Change in Control and paid out immediately following the date of the Change in Control. The awards to Messrs. Ward and Schneider were forfeited upon the termination of their employment with the Company. For additional information regarding the vesting of PRSUs following a Change in Control, see “Executive Officer Termination Benefits” below.

RSU Awards to Messrs. Pyatt and Luebbers. Neither Mr. Pyatt nor Mr. Luebbers received equity awards in March 2022, at the time the other named executive officers received equity awards, as they were not serving as employees of the Company at such time. Instead, they received equity awards for their service as “outside directors,” which are directors who are not employees of the Company or its subsidiaries. Specifically, Mr. Pyatt received RSUs with an approximate value of $200,000 (27,473 units) in connection with his service as our non-executive Chairman, and Mr. Luebbers received RSUs with an approximate value of $90,000 (13,050 units), representing the customary outside director equity grant. The awards were granted on the date of our 2022 annual meeting of stockholders, which is the same date that we grant RSU awards to the other outside directors, and vest upon on the earlier to occur of (i) the one-year anniversary of the date of the grant and (ii) the election of directors at the first annual meeting of our stockholders occurring after the date of the grant, with vesting accelerated in the event of death or disability or termination of service without cause in connection with or within twenty-four (24) months following a change in control. In connection with their appointment as interim executive officers in November 2022, each of Messrs. Pyatt and Luebbers received RSUs with an approximate value of $325,000 (equivalent to 66,056 units). Such awards vest on the one-year anniversary of the grant date, provided that such officer’s continues to be employed by the Company or continues to serve on the board as of such date.

2022 Compensation for Mr. Hermes. In connection with his appointment as Chief Financial Officer, effective December 1, 2022, Mr. Hermes entered into an employment agreement that provided for an annual base salary of $375,000 and eligibility to participate in our annual cash incentive plan starting in fiscal 2023. In addition, Mr. Hermes received a one-time cash signing bonus of $100,000, subject to certain repayment provisions if his employment is terminated by the Company for Cause or if he resigns his employment other than for Good Reason, and an initial equity grant of approximately $375,000 in RSU grant value, vesting one-third per year subject to his continued service through the applicable vesting date.

Health and Welfare Benefits

Our named executive officers participate in the same health and welfare benefit programs as all other full-time employees, including life, medical and disability insurance, as well as the right to participate in a 401(k) Plan with an annual employer matching contribution. We do not maintain any nonqualified pension plans or deferred compensation plans.

Separation Benefits

Pursuant to Mr. Ward’s employment agreement, we provided him with certain benefits in connection with the termination of his employment in November 2022. We have also agreed to pay certain benefits to Messrs. Hermes, Boparai and Hirsty to the extent that their employment is terminated under certain circumstances, with the amount of the benefits set forth in their respective employment agreements. Please see “Executive Officer Termination Benefits” below for additional information. We provide these benefits to be competitive with typical market practice and to ensure executives’ continued focus and engagement in the event of certain potential transactions that benefit shareholders but may result in termination of the executive’s employment.

Compensation for 2023

Base Salaries and Cash Bonuses for 2023

The Committee did not increase the salaries of either of Messrs. Boparai or Hirsty, based upon the Company’s objective of preserving capital. There were also no increases for any of Messrs. Pyatt, Luebbers or Hermes, as their salaries had been established in November 2022, in the case of Messrs. Pyatt and Luebbers, when they were elected as interim executive officers, and in the case of Mr. Hermes, when he was hired as our Chief Financial Officer.

In April 2023, the Committee approved a cash payment of $150,000 to Mr. Luebbers for his effort and workload as Interim President commencing November 7, 2022. Mr. Luebbers’ role and responsibilities as Interim President were greater than anticipated at the time his compensation was established, and accordingly, the Committee desired to reward him for his extraordinary efforts.

2023 Equity Awards

In April 2023, our Committee approved grants of time-based RSUs to each of Messrs. Hermes, Boparai and Hirsty in the amounts set forth in the table below. No other named executive officer received RSU awards in 2023. While our Committee customarily makes equity awards to our executive officers in March each year, the 2023 awards were delayed as a result of the Board’s focus on the pending merger with Ready Capital.

The RSUs are subject to three-year ratable vesting, with one-third of the RSUs vesting each year commencing January 14, 2024, subject to continued service on each vesting date, with vesting accelerated upon certain qualifying terminations in connection with a change in control or if the successor entity does not assume the RSUs. Please see “Executive Officer Termination Benefits—Termination in Connection with or Following a Change in Control” for additional information.

Stock Ownership Policies

Our Board believes that our directors and named executive officers should have a meaningful investment in our common stock in order to more closely align their interests with those of our stockholders. Accordingly, our Board has established stock ownership policies for executives and non-employee directors.

Non-employee directors are required to own common stock with a value equal to at least five times the annual cash retainer for Board service by the end of the fifth year after initial election or appointment.

Until the required ownership level is achieved, executive officers must retain at least 50% of net-after-tax profit shares from equity compensation awards. Net-after-tax profit shares are shares from vesting of equity grants and/or shares received upon exercise of stock options, net of shares tendered or withheld for payment of the exercise price and net of taxes. This retention requirement will also apply if an executive or non-employee director becomes non-compliant due to a reduction in stock price.

Our stock ownership policies also set forth the forms of equity interests in our Company which count toward stock ownership, and specifically exclude pledged securities from counting. Shares that count toward ownership include shares owned directly or indirectly by the executive or immediate family members residing in the same household as well as RSUs that are earned solely by continued service. Unearned PRSUs and unexercised stock options (which we have not granted) do not count toward ownership. As of March 31, 2023, none of our executive officers or directors had pledged shares of our common stock. Our policies further provide that a non-management director who is prohibited by law or by the regulations of his or her employer from having an ownership interest in our Company’s securities shall be exempt. The full stock ownership policies are set forth in our Corporate Governance Guidelines, which are posted on our website.

Policy on Hedging and Margin

Our insider trading policy prohibits our directors, officers and employees from engaging in any hedging or monetization transactions or similar arrangements with respect to our securities. Such parties are also prohibited from engaging in any short sales, utilizing a margin account with respect to buying or selling our securities or trading in exchange-traded options or other derivative securities with respect to our securities.

Tax Matters

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally disallows a tax deduction to publicly held companies for compensation paid to certain executive officers in excess of $1 million, subject to certain limited exceptions.

While we are aware of the impact of Section 162(m) of the Code on our compensation arrangements, our Committee believes that stockholder interests are best served if we retain maximum flexibility to design executive compensation programs that meet stated business objectives. Further, our Committee believes that it is not practicable to consider implementing a $1 million annual compensation limit per executive officer, given the Company’s business need to pay our officers competitive levels of compensation. In addition, we believe that, because we qualify as a REIT under the Code, and therefore are not subject to federal income taxes on our income to the extent distributed, the payment of compensation that does not satisfy the requirements of Section 162(m) will not generally affect our net income. However, to the extent that compensation does not qualify for deduction under Section 162(m), a larger portion of stockholder distributions may be subject to federal income taxation as dividend income rather than return of capital. We do not believe that Section 162(m) will materially affect the taxability of stockholder distributions, although no assurance can be given in this regard due to the variety of factors that affect the tax position of each stockholder. For these reasons, Section 162(m) does not directly govern our Committee’s compensation policy and practices.

Section 409A of the Code imposes additional significant taxes on an executive officer, director or service provider in the event that the individual receives “deferred compensation” that does not satisfy the requirements of Section 409A of the Code. In addition to traditional nonqualified deferred compensation plans, Section 409A of the Code applies to certain severance arrangements, bonus arrangements and equity awards. We structure all our nonqualified deferred compensation plans, severance arrangements, bonus arrangements and equity awards in a manner intended either to avoid the application of Section 409A of the Code or to comply with the applicable requirements of Section 409A of the Code.

Risks Associated with Compensation

We do not believe that risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on the Company. Our Committee believes that the mix and design of the elements of our executive compensation program do not encourage management to assume excessive risks. Our Committee reviewed the elements of executive compensation to determine whether any portion of executive compensation encourages excessive risk taking. Our Committee concluded that the following risk oversight and compensation design features guard against excessive risk-taking:

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis in this Proxy Statement with management. Based on such review and discussion, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Respectfully submitted,

The Compensation Committee of the Board of Directors

Stephen G. Haggerty (Chairman)

Daniel J. Hirsch

David A. Karp

Pinkie D. Mayfield

⁽¹⁾ The amounts shown represent each named executive officer’s threshold, target and maximum annual incentive opportunities for performance in 2022. These opportunities were approved by our Compensation Committee in March 2022. The actual amount of each named executive officer’s award is based on the achievement of certain performance goals as discussed in our Compensation Discussion and Analysis. The annual cash incentive awards earned by our named executive officers for performance in 2022 were paid during the first quarter of 2023, excluding awards to Messrs. Ward and Schneider, whose awards were forfeited upon the termination of their employment with the Company. 

⁽²⁾ The amounts in this column reflect the service-based restricted stock unit awards granted in 2022. The awards to Messrs. Ward and Schneider were forfeited upon the termination of their employment with the Company. 

⁽³⁾ The amounts shown represent the grant date fair value computed in accordance with FASB ASC Topic 718 of restricted stock awards granted under our Amended and Restated 2019 Stock Incentive Plan as currently in effect. See Note 11 of the Notes to Consolidated Financial Statements included in the Original Form 10-K for a discussion of the relevant assumptions used in calculating grant date fair value.

Executive Officer Termination Benefits

The employment agreements of each of Messrs. Hermes, Boparai and Hirsty provide for certain termination benefits in the event that their employment is terminated by us without “cause,” by the officer for “good reason,” or if the termination of employment is due to death or disability of the officer during his employment. Neither of the letter agreements governing the terms of employment of Messrs. Pyatt and Luebbers as interim executive officers include any such termination benefits (Messrs. Hermes, Boparai, Hirsty, Pyatt and Luebbers are hereby referred to as the “Continuing Officers”).

Our outstanding RSUs and PRSUs provide for acceleration upon the termination of the Continuing Officer’s employment under certain circumstances. These benefits are described below.

We were also a party to an employment agreement with Messrs. Ward and Schneider prior to their separation from the Company as our Chief Executive Officer and Chief Financial Officer, respectively. A description of the benefits Mr. Ward received upon termination of his employment are described below. Mr. Schneider did not receive any benefits in connection with his resignation from employment.

Mr. Pyatt was party to an employment agreement with us until he resigned as Chief Executive Officer effective March 1, 2022. In connection with his resignation, Mr. Pyatt entered into a letter agreement (the “Chairman Agreement”) providing for compensation as Chairman of the Board. Such agreement provided for Mr. Pyatt to receive an annual retainer in the amount of $210,000 paid in quarterly installments, as well as an equity award with a fair market value of $200,000. Payment of the retainer to Mr. Pyatt was terminated upon his entry into the letter agreement providing for his service as our Interim Chief Executive Officer.

As part of a management reorganization on April 29, 2022, Mr. Hirsty’s position as Chief Credit Officer was eliminated, and effective on the same date, he was appointed the Company’s National Head of Asset Management, which is a non-executive officer position. Mr. Hirsty entered into an amended and restated employment agreement with respect to his change in position. The termination benefits that Mr. Hirsty is entitled to in the event his employment is terminated by us without “cause,” by him for “good reason,” or if the termination of his employment is due to death or disability is unchanged from his prior employment agreement.

Termination of Employment without Cause or for Good Reason

Pursuant to each of Messrs. Hermes, Boparai and Hirsty’s employment agreements, each such officer is entitled to receive his base salary and Company group healthcare premiums as severance pay if we terminate such person’s employment without “cause,” or the executive officer resigns for “good reason.”

“Cause” is defined in the officers’ employment agreements to include certain actions by the executive officers, including: (i) fraud, theft, intentional dishonesty or breach of fiduciary duty with respect to the Company or subsidiary, (ii) gross negligence or willful misconduct in the performance of duties, (iii) failure to follow a reasonable directive of the Board or officer to whom the person reports, (iv) material breach of the employment agreement, including violations of non-disclosure, non-compete and non-solicit provisions or (v) conviction or indictment with respect to any felony or any crime involving an act of moral turpitude, or pleading guilty, no contest or nolo contendere with respect to any such crime.

“Good reason” is defined in the officers’ employment agreement to include events with respect to the applicable officers such as (i) a material diminution in the individual’s duties or title, (ii) a material breach by the Company of the employment agreement, (iii) a relocation of the officers’ place of employment more than a certain specified distance without his consent, (iv) a material reduction in target annual bonus or (v) reduction in annual salary except as part of an across the board reduction for senior executive officers of the Company.

In the event that we terminate any of Messrs. Hermes, Boparai or Hirsty’s employment without cause, or such officer resigns employment for good reason, then contingent upon the execution of a full release of claims, such officer will be entitled to receive his base salary in regular installments in accordance with the Company’s general payroll practice, and Company group healthcare premiums, paid on a monthly basis, for the following periods:

Termination of Employment due to Death or Disability

In the event that Messrs. Hermes, Boparai or Hirsty’s employment terminates as a result of death or disability, such officer and his family, in the event of termination due to disability, or the family, in the event of termination due to death, will be entitled to receive Company group healthcare premiums, paid on a monthly basis for a period of twelve months for Messrs. Hermes and Boparai, and six months for Mr. Hirsty. Additionally, if employment is terminated due to death or disability, then any unvested service based RSUs issued to such officer will fully vest as of the date of such termination, and PRSUs will vest on a pro-rated basis based upon performance during the full three-year performance period, and will be paid at the same time as other holder of the applicable PRSUs.

Termination in Connection with or Following a Change in Control

In the event that Messrs. Hermes, Boparai or Hirsty’s employment is terminated without cause in connection with, or within 30 days before, or during the 24 month period following, a “Change in Control” of the Company (the “Change of Control Period”), then, in addition to the benefits that the executive officer would otherwise be entitled to with respect to a without cause termination described above, the executive officer’s service based unvested RSUs will also fully vest as of the date of such termination, and in the case of termination by the executive officer for good reason during the Change of Control Period, unvested service based RSUs granted in 2021 and later will fully vest as of the date of such termination.

With respect to outstanding PRSUs, the applicable performance period ends upon the date of the Change in Control. If the acquiring company assumes the PRSUs, then the awards become subject to service based vesting through the end of the original three year performance period for officers employed by the Company on the date of the change of control, subject to acceleration if termination occurs due to death or disability, termination of the officer without cause, or termination by the officer for good reason prior to the end of the three-year performance period. If the acquiring company does not assume the PRSUs, then provided the officer is either employed by the acquiror, or the officer’s employment is terminated by the Company without cause, or terminated by the executive for good reason, in either case, within 30 days prior to the date of the Change in Control, the PRSUs will be paid out within 10 days of the Change in Control.

Post-Employment Restrictive Covenants

During the period of employment and for a specified period equivalent to the severance period thereafter (regardless of whether severance is payable), Messrs. Hermes, Boparai or Hirsty are obligated not to provide services or products that are competitive with the Company’s business or to solicit the Company’s customers. In addition, during the period of employment and for a specified period equivalent to the severance period thereafter, each of Messrs. Hermes, Boparai or Hirsty agrees not to solicit the Company’s employees. Notwithstanding the foregoing, Mr. Boparai’s employment agreement provides that he is not subject to the non-competition and non-solicitation provisions to the extent that is prohibited by any bar rules applicable to him as a lawyer.

Compensation in Connection with Mr. Ward’s Separation from the Company

In connection with the termination of Mr. Ward’s employment as our Chief Executive Officer on November 7, 2022, we entered a Separation and Release Agreement with him, pursuant to which Mr. Ward received the separation benefits to which he was entitled under his employment agreement as a result of a without cause termination by the Company, which benefits consist of payment of his base salary for a 12-month period, as well as payment in the amount equal to premium for COBRA benefits under the Company’s health plan for the same period. Additionally, the Company paid Mr. Ward his customary compensation and benefits for the remainder of November 2022 following the date of termination.

Mr. Schneider’s Resignation from the Company

Mr. Schneider resigned from his position as Chief Financial Officer on December 1, 2022, but agreed to remain with the Company through December 31, 2022 as an advisor to the Chief Financial Officer to ensure a seamless transition. As a result of his resignation, Mr. Schneider forfeited his unvested equity awards and was ineligible to receive an annual bonus for 2022.

Quantification of Termination Benefits

The table below reflects the amount of compensation and benefits payable to each Continuing Officer in the event of termination of employment under the circumstances indicated. The amounts shown are estimates of the amounts that would be paid to the relevant persons assuming the applicable termination and/or change in control occurred on December 31, 2022. The actual amounts may be determined only if and when the named executive officer’s employment is terminated and/or the change in control occurs. Receipt of benefits upon termination is subject to the execution of a general release of claims by the named executive officer. Although our employment and severance agreements with our current named executive officers contain certain restrictive covenants, including non-competition and non-solicitation provisions, no specific value to the company has been ascribed to these covenants in the table.

⁽¹⁾ For purposes of determining the value of PRSUs, the number of shares earned assumes achievement of the threshold amount of the award as of the date of the Change in Control, and that the acquiring company does not assume the PRSU awards. If the acquiring company assumed the PRSU awards, then the number of shares of common stock to be awarded pursuant to the PRSU would still be determined as of the date of the Change in Control, but would be subject to service based vesting through the end of the original three-year performance period (subject to acceleration in the event of a termination without cause, a good reason termination by the executive, or the executive’s termination by reason of death or disability).

Chief Executive Officer Pay Ratio Disclosure

We are required by SEC rules to disclose the ratio of the total compensation of our Chief Executive Officer during 2022, to the total compensation for 2022 of our median employee. For 2022, we used the same median employee that was identified in 2021 since there has been no change in our employee population or employee compensation arrangements that we believe would significantly impact our pay ratio disclosure. We identified our median employee in 2021 based on our December 31, 2021 employee base. We identified the median employee based on compensation reported on Form W-2 for our 2021 employees other than our Chief Executive Officer. We annualized the compensation reported on Form W-2 for employees who joined the Company during 2021.

During 2022, Mr. Pyatt served as our Chief Executive Officer from the beginning of the year through February 28, 2022, and as our interim Chief Executive Officer from November 7, 2022 through the end of the year. During the period that Mr. Pyatt was not serving as our Chief Executive Officer, he received compensation for service as our Chairman of the Board. Pursuant to instruction 10 to Item 402(u) of Regulation S-K, we are basing Mr. Pyatt’s total compensation for purposes of calculating Mr. Pyatt’s compensation on an annualized basis, determined based upon the periods he served as our Chief Executive Officer during 2022 (and excluding the period he served only as the Chairman of the Board). Accordingly, we calculated Mr. Pyatt’s total salary for service as our Chief Executive Officer as $699,180 for the year 2022. Additionally, for purposes of calculating Mr. Pyatt’s total compensation, we have also included (i) the grant date fair value of the RSU award calculated in accordance with FASB ASC Topic 718 that Mr. Pyatt received in connection with his appointment as our interim Chief Executive Officer on November 7, 2022 ($324,996), and (ii) the amount of his 2022 All Other Compensation disclosed in the Summary Compensation Table, excluding the fees he was paid for the period he served as our non-executive Chairman ($4,623). Mr. Pyatt’s total annualized compensation calculated in such manner is $1,028,799.

Our median employee’s total compensation for 2022 calculated on the same basis as determined in the Summary Compensation Table was $124,349. The ratio of Mr. Pyatt’s annualized compensation to the total compensation of our median employee for 2022 is 8.3 to 1.

Compensation Committee Interlocks and Insider Participation

The members of our Compensation Committee of our Board are Messrs. Haggerty (Chairman), Hirsch and Karp and Ms. Mayfield, each of whom is an independent director. None of our executive officers serves as a member of a board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our Board or Compensation Committee.

Treatment of Equity Awards Under the Merger Agreement

Pursuant to the Merger Agreement between the Company and Ready Capital, at the effective time of the merger of the Company into Merger Sub (the “Effective Time”), each PRSU will be cancelled immediately prior to the Effective Time, with the holder thereof becoming entitled to receive a number of shares of common stock of Ready Capital (“Ready Capital Common Stock”) equal to the product of (i) the number of shares of our common stock subject to such PRSU (determined based on the achievement of applicable performance goals measured as of immediately prior to the Effective Time) and (ii) 0.47233 (such number, the “Exchange Ratio”) shares of Ready Capital Common Stock. Additionally, each RSU award will be assumed by Ready Capital and converted into an award of restricted stock units with respect to a number of shares of Ready Capital Common Stock equal to the product of (i) the total number of shares of our common stock subject to such RSU award as of immediately prior to the Effective Time and (ii) the Exchange Ratio, on the same terms and conditions as were applicable to such RSU award as of immediately prior to the Effective Time (including vesting conditions).

Pursuant to the terms and conditions of the award agreement governing each RSU award granted to executive officers, upon an executive officer’s termination by us or a successor entity without cause, or, in the case of an RSU award granted in 2021 and thereafter, resignation by the executive officer for good reason, in either case within twenty-four months following a change in control, such RSU award will immediately vest in full. Such accelerated vesting treatment will continue to apply to RSU Awards following the completion of the merger.

Outside Director Compensation

Director Compensation Table

The following table provides information regarding the compensation of our outside directors for the fiscal year ended December 31, 2022, other than for Messrs. Pyatt and Luebbers, who were appointed as interim officers of the Company in November 2022. The compensation of Messrs. Pyatt and Luebbers in 2022, including for the period that Messrs. Pyatt and Luebbers served as outside directors, is described in the Compensation Discussion and Analysis and quantified in the Summary Compensation Table in this Amendment. We refer to directors who are neither employees of the Company or its subsidiaries nor have a consulting or letter agreement with the Company or its subsidiaries as “outside directors.”

⁽¹⁾ The amounts shown represent the grant date fair value computed in accordance with Statement of Financial Accounting Standards Bulletin ASC Topic 718 referred to as “FASB ASC Topic 718,” of restricted stock awards granted under our Amended and Restated 2019 Stock Incentive Plan as currently in effect.

⁽²⁾ Ms. Mayfield joined our Board on April 25, 2022, and as a result, received a reduced amount of director fees during 2022.

Outside Director Compensation

Pursuant to our outside director compensation policy, each outside director receives an annual retainer of $175,000, consisting of a $80,000 annual cash retainer paid in quarterly installments, and a restricted stock unit (“RSU”) grant equal to $95,000 divided by the closing price of our common stock on the last day before the grant date. The amount of the annual cash retainer and RSU grant were each increased during 2022 by $5,000 over the 2021 amounts.

The RSU awards are customarily granted on the date of our annual meeting of stockholders and will vest on the earlier of one year anniversary of the date of grant or the date of the next annual meeting based on the director’s continued service through such date; provided, however, that any unvested awards will accelerate in the event the recipient dies while serving as a director, discontinues service as a director as a result of disability, or if the service of a director is terminated without cause in connection with or within 24 months of a change in control of the Company.

Our Board adopted a program in 2020 that allows each outside director, effective beginning as of the date of the Annual Meeting, to elect to receive an increase in the annual RSU grant in lieu of all or any portion of the annual cash retainers for Board service, and the additional compensation payable for lead independent director service, committee chair service and committee member service, as described below. The increase in the annual RSU grant, if elected, will be for a number of shares equal to the foregone amount of the cash retainers divided by the closing price per share of common stock on the last trading day before the grant date.

We also pay additional annual cash compensation to our lead independent director, chairpersons of our Audit, Compensation, and Nominating and Corporate Governance and Finance Committees, as well as other members of such committees, as set forth below. The amounts paid to the committee chairpersons were nominally increased during 2022, with the increased amounts set forth below.

Payments, if made in cash, are also paid in quarterly installments.

Lead Independent Director and Committee Chairs

Other Committee Members

In addition, in recognition of the significant additional effort and time required of the directors commencing in the fall of 2022 in connection with the Company’s leadership transition, in April 2023, our Compensation Committee approved a special one-time additional cash payment to each outside director in the amount of $50,000. Among other things, this additional director compensation reflects that the Board has met on an almost weekly basis since the fall of 2022, and that our outside director compensation does not provide for fees for the occurrence of excess Board meetings.