DEFINITIVE PROXY STATEMENT
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

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  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 Pursuant to §240.14a-12

MBIA Inc.

(Name of Registrant as Specified In Its Charter)

 

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

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MBIA Inc.      Charles R. Rinehart  
1 Manhattanville Road      Chairman  
Suite 301    William C. Fallon  
Purchase, NY 10577      Chief Executive Officer  
914-273-4545   

 

 

LOGO

March 21, 2018

Dear Owners:

You are cordially invited to attend the annual meeting of MBIA shareholders on Wednesday, May 2, 2018 at 10:00 a.m. at 2 Manhattanville Road, Conference Room 2, First Floor, Purchase, New York.

Our agenda for this year’s meeting is for shareholders to:

 

 

vote on the election of Directors;

 

 

express their opinion, on an advisory basis, on executive compensation;

 

 

ratify the selection of independent auditors for 2018; and

 

 

ratify the adoption of an amendment to the Company’s By-Laws;

After the formal agenda is completed, we will be happy to answer any questions you may have.

Even if you do not plan to attend the annual meeting, we urge you to vote your shares. Instructions for using all of the available voting options are included in the enclosed proxy statement.

We appreciate your continued support on these matters and look forward to seeing you at the meeting.

Very truly yours,

 

LOGO   LOGO

Charles R. Rinehart

Chairman

 

William C. Fallon

Chief Executive Officer


Table of Contents

MBIA Inc.

Notice of Annual Meeting of Shareholders

and Proxy Statement

Dear Shareholders:

We will hold the 2018 Annual Meeting of MBIA Inc. (“MBIA” or the “Company”) Shareholders at 2 Manhattanville Road, Conference Room 2, First Floor, Purchase, New York 10577, on Wednesday, May 2, 2018 at 10:00 a.m. EDT in order for shareholders to:

 

1. elect six Directors for a term of one year, expiring at the 2019 Annual Meeting;

 

2. express their opinion, on an advisory basis, on the compensation paid to the Company’s named Executive Officers (“NEOs”) as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission (“SEC”), including under the “Compensation discussion and analysis” and “Executive compensation tables” sections of the proxy statement;

 

3. ratify the selection of PricewaterhouseCoopers LLP, certified public accountants, as independent auditors for the Company for the year 2018;

 

4. ratify the adoption of an amendment to the Company’s By-Laws; and

 

5. transact any other business as may properly come before the meeting.

These items are more fully described in the following pages.

This year, we have again elected to adopt the SEC rules that allow companies to furnish proxy materials to their shareholders over the Internet. The Notice of Internet Availability of Proxy Materials (the “Notice”) provided to shareholders contains instructions on how to access our 2017 Annual Report to Shareholders and proxy materials for the 2018 Annual Meeting online, how to request a paper copy of these materials and how to vote your shares. We expect to furnish the Notice to shareholders and make proxy materials available beginning on or about March 21, 2018.

The Notice provides instructions regarding how to view our proxy materials for the 2018 Annual Meeting online. As explained in greater detail in the Notice, to view the proxy materials and vote, you will need to visit www.proxyvote.com and have available the 12-digit control number(s) contained on your Notice. If you received a Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you request them or you own shares of MBIA Inc. in the MBIA Inc. 401(k) Plan or MBIA Inc. Non-Qualified Retirement Plan. There is no charge for requesting a copy. To facilitate timely delivery, please make your request on or before April 18, 2018. To request paper copies, shareholders can go to www.proxyvote.com, call 1-800-579-1639 or send an email to sendmaterial@proxyvote.com. When requesting materials by email, please send a blank email with your 16-digit control number(s) (located on the Notice) in the subject line.

You have the option to receive all future proxy statements, proxy cards and annual reports electronically via email or the Internet. If you elect this option, the Company will only mail materials to you in the future if you request that we do so. To sign up for electronic delivery, please follow the instructions under “General information––Voting” to vote your shares using the Internet. After submitting your vote, follow the prompts to sign up for electronic delivery.

 

Sincerely,
LOGO
Jonathan C. Harris
Secretary

1 Manhattanville Road

Suite 301

Purchase, New York 10577

March 21, 2018


Table of Contents

Contents

 

General information

     1  

Board of Directors corporate governance

     3  

The Board of Directors and its committees

     3  

Process for Director searches

     4  

Board leadership structure

     4  

Board and Board committee roles in risk oversight

     4  

Shareholder communications

     5  

Company Standard of Conduct

     5  

Independent Directors’ compensation

     5  

Audit Committee report

     8  

Compensation discussion and analysis

     10  

Compensation and Governance Committee report

     35  

Executive compensation tables

     36  

Summary compensation table for 2017

     36  

Grants of plan-based awards in 2017

     38  

Outstanding equity awards as of December 31, 2017

     39  

Option exercises and stock vested in 2017

     41  

Non-qualified deferred compensation in 2017

     41  

Potential payments upon termination or change in control as of December 31, 2017

     42  

Compensation plan risk assessment

     47  

Principal accountant fees and services

     48  

Security ownership of certain beneficial owners

     49  

Security ownership of Directors and Executive Officers

     50  

Section 16(a) beneficial ownership reporting compliance

     51  

Certain relationships and related transactions

     51  

Proposals for shareholder approval recommended by the Board

     52  

Proposal 1: Election of Directors

     52  

Proposal 2: Approval of compensation paid to NEOs

     56  

Proposal 3: Selection of independent auditors

     56  

Proposal 4: Ratification of the adoption of an amendment to the Company’s By-Laws

     57  

Other matters and shareholder proposals

     65  

Householding of Annual Meeting materials

     65  

Appendix A: By-Laws Amendment

     66  


Table of Contents

General information

How it works. The Board of Directors of the Company is soliciting shareholders’ proxies in connection with the Annual Meeting of Shareholders to be held at 2 Manhattanville Road, Conference Room 2, First Floor, Purchase, New York 10577, on Wednesday, May 2, 2018 at 10:00 a.m. EDT. Only shareholders of record at the close of business on March 8, 2018 may vote at the Annual Meeting. As of March 8, 2018, there were 89,325,623 shares of our common stock (which is our only class of voting stock) outstanding and eligible to be voted. Treasury shares are not voted. Each shareholder has one vote for each share of MBIA common stock owned on the record date for all matters being voted on at the Annual Meeting.

A quorum is constituted by the presence, in person or by proxy, of holders of our common stock representing a majority of the number of shares of common stock entitled to vote. Abstentions and broker non-votes will be considered present to determine the presence of a quorum.

Voting. If you hold shares in more than one account (e.g., you are a shareholder of record, own shares in the Company’s 401(k) Plan or Non-Qualified Retirement Plan, and beneficially own shares in one or more personal brokerage accounts, or any combination of the foregoing), you may receive more than one Notice and/or proxy card. Accordingly, in order to vote all of your shares, you will need to vote more than once by following the instructions on each of the items you receive.

You may vote using the following methods:

Internet. You may vote on the Internet up until 11:59 PM Eastern Time the day before the meeting by going to the website for Internet voting on the Notice or proxy card (www.proxyvote.com) and following the instructions on the website. Have your Notice or proxy card available when you access the web page. If you vote over the Internet, you should not return your proxy card.

Telephone. If you received your proxy materials by mail, or if you received a Notice and requested a paper copy of the materials, you may vote by telephone by calling the toll-free telephone number on your proxy card (1-800-690-6903), 24 hours a day up until 11:59 PM Eastern Time the day before the Annual Meeting, and following the prerecorded instructions. Have your proxy card available when you call. If you vote by telephone, you should not return your proxy card. Notice recipients should first visit the Internet site listed on the Notice to review the proxy materials before voting by telephone.

Mail. If you received your proxy materials by mail, or if you received a Notice and requested a paper copy of the materials, you may vote by mail by marking your proxy card, dating and signing it, and returning it in the postage-paid envelope provided or as directed on the voting instruction form so that it arrives before the Annual Meeting.

In Person. You may vote your shares in person by attending the Annual Meeting and submitting your proxy at the meeting. If your shares are held in the name of a bank, broker or other holder of record (i.e., your shares are held in “street name”), you must obtain a legal proxy executed in your favor from the holder of record and bring it to the Annual Meeting in order to vote at the Annual Meeting.

You can revoke your proxy at any time before the Annual Meeting or when prompted during the Annual Meeting. If your shares are held in street name, you must follow the instructions of your broker to revoke your voting instructions. If you are a holder of record and wish to revoke your proxy instructions, you must advise the Secretary in writing before the proxies vote your common stock at the meeting, deliver later-dated proxy instructions, or attend the meeting and vote your shares in person. Unless you decide to attend the meeting and vote your shares in person after you have submitted voting instructions, we recommend that you revoke or amend your prior instructions in the same way you initially gave them – that is, by Internet, telephone, or mail. This will help to ensure that your shares are voted the way you have finally determined you wish them to be voted.

All shares that have been voted properly by an unrevoked proxy will be voted at the Annual Meeting in accordance with your instructions. If you sign and submit your proxy card, but do not give voting instructions, the shares represented by that proxy will be voted as our Board recommends.

If your shares are held in street name, you may receive voting instructions from the holder of record. If you do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote. Brokers do not have discretionary authority to vote on the election of Directors (Proposal 1) or the advisory vote on NEO compensation (Proposal 2). Please instruct your broker so your votes can be counted.

 

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Dissenters’ rights. Under Connecticut law, dissenters’ rights are not available with respect to the matters included in the formal agenda for the 2018 Annual Meeting of Shareholders.

Miscellaneous. The cost to prepare and mail these proxy materials will be borne by the Company. Proxies may be solicited by mail, in person or by telephone by Directors, officers and regular employees of the Company without extra compensation and at the Company’s expense. The Company will also ask bankers and brokers to solicit proxies from their customers holding shares of MBIA common stock and will reimburse them for reasonable expenses.

A copy of the Company’s Annual Report on Form 10-K is available on the Company’s website, www.mbia.com, under the “SEC Filings” link or by writing to Shareholder Information at MBIA Inc., 1 Manhattanville Road, Suite 301, Purchase, New York 10577.

 

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Board of Directors corporate governance

The Board of Directors and its committees

The Board of Directors supervises the overall affairs of the Company. To assist it in carrying out these responsibilities, the Board has delegated authority to the four regular committees described below. The Board of Directors met five times in regular sessions during 2017. In addition to its regular sessions, the Board met one time in special session during 2017. The Board of Directors has regularly scheduled non-management Director meetings. Pursuant to the MBIA Inc. Board Corporate Governance Practices, each Director is expected to attend at least 75% of all Board meetings and committee meetings of which that Director is a member, on a combined basis. All of the Directors met this requirement in 2017. The MBIA Inc. Board Corporate Governance Practices can be found on the Company’s website, www.mbia.com, under the “Ethics and Governance” link, and are available in print to any shareholder who requests a copy by writing to Shareholder Information at MBIA Inc., 1 Manhattanville Road, Suite 301, Purchase, New York 10577. Pursuant to the MBIA Inc. Board Corporate Governance Practices, Directors are required to attend annual shareholder meetings, barring unusual circumstances. The 2017 Annual Meeting was attended by each of the Company’s Directors.

Regular Board committees. Each regular Board committee has a charter, which can be found on the Company’s website, www.mbia.com, under the “Ethics and Governance” link, and is available in print to any shareholder who requests a copy by writing to Shareholder Information at MBIA Inc., 1 Manhattanville Road, Suite 301, Purchase, New York 10577. The committees are described below.

Executive Committee. The Executive Committee, which at year-end consisted of Messrs. Rinehart (Chair), Gilbert, Shasta and Vaughan, did not meet during 2017. This Committee is authorized to exercise powers of the Board during intervals between Board meetings, subject to limitations set forth in the By-Laws of the Company and the Committee’s Charter.

Finance and Risk Committee. The Finance and Risk Committee, which at year-end consisted of Messrs. Vaughan (Chair), Rinehart, Chin, Gilbert and Shasta, met four times in regular sessions during 2017. Mr. Rinehart was appointed a member of the Committee on August 2, 2017. This Committee assists the Board in monitoring the Company’s (i) proprietary investment portfolios, (ii) capital and liquidity, (iii) exposure to changes in market value of assets and liabilities, (iv) credit exposures in the insured portfolios, and (v) financial risk management policies and procedures, including regulatory requirements and limits.

Compensation and Governance Committee. The Compensation and Governance Committee (the “Compensation Committee”), which at year-end consisted of Messrs. Gilbert (Chair), Chin, Rinehart, Shasta and Vaughan, met five times in regular sessions during 2017. Messrs. Rinehart and Shasta were each appointed as members of the Committee on August 2, 2017. In accordance with the Compensation Committee Charter, the provisions of Rule 10C-1(b)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the listing standards of the New York Stock Exchange (the “NYSE”), the Board of Directors has affirmatively determined that each of the Compensation Committee members is independent. As part of its specific role, the Compensation Committee is responsible for (i) setting the overall compensation principles of the Company, (ii) overseeing executive compensation, (iii) reviewing the Company’s compensation and benefits program, (iv) overseeing the retention of the Committee’s advisers, (v) overseeing significant organizational and personnel matters, (vi) determining the membership, size and composition of the Board, (vii) setting Directors’ compensation, (viii) selecting Directors to serve on the Board committees, and (ix) developing corporate governance principles and practices. The Board approves the CEO’s compensation level and approves the recommendations of the Compensation Committee for the other NEOs’ compensation levels. Since 2005, the Compensation Committee has retained compensation consulting firms to assist and advise it in conducting reviews of the Company’s compensation plans for appropriateness and to assess the competitiveness of the Company’s compensation levels relative to market practice.

Compensation and Governance Committee interlocks and insider participation. No member of the Compensation Committee has ever been an officer or employee of the Company or any of its subsidiaries. During 2017, no

NEO served as a Director or member of the compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers is or has been a Director of the Company or a member of the Company’s Compensation Committee.

Audit Committee. The Audit Committee, which at year-end consisted of Messrs. Shasta (Chair), Chin, Gilbert, Rinehart and Vaughan, met five times in regular sessions during 2017. In accordance with the Audit Committee Charter and the

 

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listing standards of the NYSE, each of the Audit Committee members is independent. In addition, the Board has designated Messrs. Chin, Gilbert, Rinehart, Shasta and Vaughan as the “audit committee financial experts” (as defined under applicable Securities and Exchange Commission (“SEC”) rules) on the Audit Committee. This Committee assists the Board in monitoring the (i) integrity of the financial statements of the Company and of other material financial disclosures made by the Company, (ii) qualifications and independence of the Company’s independent auditor, (iii) performance of the Company’s internal audit function and independent auditor, (iv) Company’s compliance policies and procedures and its compliance with legal and regulatory requirements, and (v) performance of the Company’s operational risk management function.

Process for Director searches

Potential Director nominees are selected in light of the Board’s needs at the time of recommendation. The Compensation Committee assesses potential nominees based on various criteria, such as relevant business and other skills and experience, personal character and judgment and diversity of experience. The Compensation Committee also considers the ability of potential nominees to devote significant time to Board activities. The independence and financial literacy of potential nominees, as well as their knowledge of and familiarity with the Company’s businesses, are additional considerations in the Compensation Committee’s selection process.

The Compensation Committee uses both referrals and third-party search firms to assist in identifying and evaluating potential nominees for election as directors. Potential candidates are first reviewed and evaluated by the Chair of the Compensation Committee. If the Chair of the Compensation Committee concludes that a candidate merits further consideration, then one or more other members of the Compensation Committee designated by the Chair will interview the candidate and decide whether the candidate should be interviewed by other board members. Potential nominees are then interviewed by all of the other members of the Compensation Committee, the Chairman of the Board and by the CEO prior to any recommendation to the Board that the potential nominee be nominated or elected as a director by the Board.

The MBIA Inc. Board Corporate Governance Practices provide that Director candidates may be identified by the Company’s Board of Directors or a corporate shareholder. Shareholders may recommend a potential nominee by sending a letter to the Company’s Corporate Secretary at MBIA Inc., 1 Manhattanville Road, Suite 301, Purchase, New York 10577. No potential nominees were recommended by shareholders in 2017.

Consideration of Board diversity. The MBIA Inc. Board Corporate Governance Practices include guidelines for selecting Directors. Under the Board Corporate Governance Practices, in selecting nominees for the Board, the Board seeks a combination of active or former senior business executives of major complex businesses (from different industry sectors), leading academics, and individuals with substantial records of business achievement, government service or other leadership roles in the not-for-profit sector, including individuals with specific knowledge and experience relevant to the Company’s business. These guidelines for selecting candidates for nomination to the Board promote diversity among the Directors, and the Compensation Committee and the Board evaluate the composition of the Board in order to assess the effectiveness of the guidelines. The results of these evaluations inform the process for identifying candidates for nomination to the Board.

Board leadership structure

The offices of Chairman of the Board and CEO of the Company are separate. The Chairman is responsible for presiding over meetings of the Board and the Company’s shareholders and performing such other duties as directed by the Board. The CEO is responsible for formulating policy and strategic direction for the Company and executing the Company’s business plan and strategy under plans approved by the Board, providing management of the Company’s day-to-day operations, hiring, directing and retaining senior management, serving as spokesperson for the Company and performing such other duties as directed by the Board or required by law.

Given that the roles of CEO and Chairman are well defined, the Board does not believe there is a risk of confusion or duplication between the two positions.

Board and Board committee roles in risk oversight

The Board and its committees oversee various risks faced by the Company and its subsidiaries. The Board regularly evaluates and discusses risks associated with strategic initiatives, and the CEO’s risk management performance is one of the criteria

 

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used by the Board in evaluating the CEO. On an annual basis, the Board also evaluates and approves the Company’s Risk Management and Tolerance Policy. The purpose of the Risk Management and Tolerance Policy is to set the policy that defines the risks the Company is willing to accept in pursuit of its goal of optimizing long term risk adjusted value for shareholders. The Board’s Audit Committee and its Finance and Risk Committee also play an important role in overseeing different types of risks.

The Audit Committee oversees risks associated with financial and other reporting, auditing, legal and regulatory compliance, and risks that may otherwise result from the Company’s operations, including risks associated with cyber intrusions. The Audit Committee oversees these risks by monitoring (i) the integrity of the financial statements of the Company and of other material financial disclosures made by the Company, (ii) the qualifications and independence of the Company’s independent auditor, (iii) the performance of the Company’s internal audit function and independent auditor, (iv) the Company’s compliance policies and procedures and its compliance with legal and regulatory requirements, and (v) the performance of the Company’s operational risk management function.

The Finance and Risk Committee oversees the Company’s credit risk governance framework, market risk, liquidity risk and other material financial risks. The Finance and Risk Committee oversees these risks by monitoring the Company’s (i) proprietary investment portfolios, (ii) capital and liquidity, (iii) exposure to changes in the market value of assets and liabilities, (iv) credit exposures in the insured portfolios, and (v) financial risk management policies and procedures, including regulatory requirements and limits. The Finance and Risk Committee’s responsibilities help manage risks associated with the Company’s investment and insured portfolios, liquidity and lines of business.

At each regular meeting of the Board, the Chairs of each of these committees report to the full Board regarding the meetings and activities of the committee.

Shareholder communications

Shareholders or interested parties wishing to communicate with our Chairman or with the non-management Directors as a group may do so by submitting a communication in a confidential envelope addressed to the Chairman or the non-management Directors, in care of the Company’s Corporate Secretary, 1 Manhattanville Road, Suite 301, Purchase, New York 10577.

Company Standard of Conduct

The Company has adopted a Standard of Conduct that applies to all Directors and employees, including the Chief Executive Officer, Chief Financial Officer and Controller, and certain third parties. The Standard of Conduct, which also constitutes a code of ethics as that term is defined in Item 406(b) of Regulation S-K, can be found on the Company’s website, www.mbia.com, under the “Ethics and Governance” link, and is available in print to any shareholder who requests a copy by writing to Shareholder Information at MBIA Inc., 1 Manhattanville Road, Suite 301, Purchase, New York 10577. The Company intends to satisfy the disclosure requirements of Form 8-K regarding an amendment to, or waiver from, an element of its code of ethics enumerated in Item 406(b) of Regulation S-K by posting such information on the Company’s website, www.mbia.com, under the “Ethics and Governance” link.

Independent Directors’ compensation

Directors retainer and meeting fees. In 2017, the Company paid Directors who are not Executive Officers an annual retainer fee of $75,000 plus an additional $2,000 for attendance at each Board meeting and each meeting of each committee on which they served (and $1,000 for each special telephonic meeting). The Company also paid each Committee Chair an annual Committee Chair retainer of $25,000. The Chairman is paid an additional retainer of $125,000. New Directors are paid a fee of $2,000 for each day of orientation.

An eligible Director may elect annually to receive retainer and meeting fees either in cash or in shares of common stock on a quarterly basis with no deferral of income, or to defer receipt of all or a portion of such compensation until a time following termination of such Director’s service on the Board. A Director electing to defer compensation may choose to allocate deferred amounts to either a hypothetical investment account (the “Investment Account”), or a hypothetical share account (the “Share Account”), which have been set up to credit such deferred payments. Such deferral elections are made under the MBIA Inc. 2005 Non-employee Director Deferred Compensation Plan (the “Plan”).

 

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Amounts allocated to the Investment Account are credited to a hypothetical money market account. Amounts allocated to the Share Account are converted into share units with each such unit representing the right to receive a share of common stock at the time or times distributions are made under the Plan. Dividends are paid as stock units each quarter if applicable. Distributions of amounts allocated to the Share Account are made in shares of common stock.

Directors’ restricted stock grants. In addition to the annual cash fees payable to Directors for 2017, the Company also granted Directors an award of restricted stock in 2017 with a value of $100,000 at the time of grant. New Directors elected to the Board also receive a one-time grant of restricted stock with a value of $100,000 at the time of grant. The Directors’ restricted stock grants are awarded under the MBIA Inc. 2005 Omnibus Incentive Plan (the “Omnibus Plan”), which is a shareholder approved compensation plan.

The restricted stock granted in 2017 is subject to a one-year restricted period during which the restricted stock is subject to forfeiture restrictions and restrictions on transferability. The restricted period applicable to a restricted stock award will lapse and the shares of restricted stock will become freely transferable prior to the first anniversary of the date of the restricted stock grant upon the earlier of: (i) the death or disability of a participating Director, (ii) a change of control in the Company as defined in the Omnibus Plan, (iii) the Company’s failure to nominate a participating Director for re-election, or (iv) the failure of the shareholders to elect a participating Director at any shareholders meeting. Unless otherwise approved by the Compensation Committee, if a participating Director leaves the Board for any reason other than the foregoing at any time prior to the first anniversary of the date of the restricted stock grant, the restricted stock will revert back to the Company. During the restricted period, a participating Director receives dividends, if applicable, with respect to, and may vote the restricted shares.

Directors’ total compensation components. Directors’ compensation for 2017 consisted of the following components. There was no change from 2016.

 

   
Directors’ total compensation components    2017  

Board Annual Retainer

   $ 75,000  

Committee Chair Retainer

   $ 25,000  

Chairman Retainer

   $ 125,000  

Board & Committee Meeting Fee (per meeting)

   $ 2,000  

Special Telephonic Meeting Fee (per meeting)

   $ 1,000  

New Director Orientation Fee (per day)

   $ 2,000  

Annual Restricted Stock Grant

   $ 100,000  

New Director Restricted Stock Grant

   $ 100,000  

Directors’ total compensation for 2018. No change to Director compensation is expected for 2018.

Directors’ total compensation paid in 2017. The amounts shown below represent compensation paid and stock awarded in 2017 for each of the Directors. The Company does not provide perquisites to its Directors.

 

           
Name (a)   

Retainer

($) (b)

    

Meeting

Fees

($) (c)

    

Stock

Awards

($) (d) (2)

    

All Other
Compensation

($) (e) (3)

    

Total

Compensation

($) (f)

 

Maryann Bruce (1)

     56,250        23,000        100,000        116,093        295,343  

Francis Y. Chin

     18,750        7,000        100,000        20,000        145,750  

Keith D. Curry (1)

     56,250        21,000        100,000        114,093        291,343  

Steven J. Gilbert

     100,000        32,000        100,000        18,825        250,825  

Charles R. Rinehart

     225,000        34,000        100,000        30,000        389,000  

Lois A. Scott (1)

     56,250        22,000        100,000        113,593        291,843  

Theodore Shasta

     100,000        33,000        100,000        38,000        271,000  

Richard C. Vaughan

     100,000        33,000        100,000        -        233,000  

 

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1 In connection with the reassessment of the appropriate governance profile of the Company, the Company requested that Ms. Bruce, Mr. Curry and Ms. Scott resign from the Board of Directors effective as of July 28, 2017.

 

2 The amounts shown represent the grant date market value of the restricted stock awards. The awards were granted on May 15, 2017.

 

3 The amounts shown represent matching gift company contributions made by the MBIA Foundation. The MBIA Foundation matches charitable contributions on a 2:1 basis. The annual individual contribution limit of $20,000 can be matched 2:1 with up to $40,000 per calendar year in matching funds. All full-time employees and Directors are eligible to participate. In addition, for Ms. Bruce, Mr. Curry and Ms. Scott, the amounts include cash payments made in January 2018 in lieu of the retainer and meeting fees scheduled to be paid from their resignation date through May 2018.

In light of the Company’s request that Ms. Bruce, Mr. Curry and Ms. Scott resign from the Board of Directors, the Compensation Committee determined to waive the forfeiture and transferability restrictions and approve the immediate acceleration of vesting of their shares of restricted stock effective as of the date of their resignations. Further, the Compensation Committee approved cash payments to Ms. Bruce, Mr. Curry and Ms. Scott to be made in January 2018 in the amount and in lieu of the retainer and meeting fees scheduled to be paid from August 1, 2017 through and including the meeting date of the Annual shareholder meeting on May 2, 2018. The Compensation Committee also approved the fulfillment of the Company’s obligation to match the charitable contributions made by Ms. Bruce, Mr. Curry and Ms. Scott to the MBIA Foundation as of December 31, 2017.

Directors’ deferred compensation balances and equity holdings as of December 31, 2017. As described under “Directors’ retainer and meeting fees” above, a Director may choose to allocate deferred amounts to either an Investment Account or a Share Account. The following table represents Directors’ account balances under the Investment and Share Accounts (deferred retainer and meeting fees) and restricted stock holdings as of December 31, 2017. Amounts shown for stock holdings are based on $7.32 per share, the closing fair market value of the shares on December 31, 2017.

 

             
Name   

Investment

Account

Balance

($)

    

Share

Account

Balance

(#)

    

Share

Account

Balance

($)

    

Restricted

Stock

Holdings

(#)

    

Restricted

Stock

Holdings

($)

    

Total

As of

12/31/17

($)

 

Francis Y. Chin

     55,766        6,214        45,486        12,121        88,726        189,978  

Steven J. Gilbert

     -        -        -        68,106        498,536        498,536  

Charles R. Rinehart

     -        -        -        98,625        721,935        721,935  

Theodore Shasta

     -        -        -        87,850        643,062        643,062  

Richard C. Vaughan

     -        -        -        85,230        623,884        623,884  

Executive Officer Directors. Mr. Brown submitted his resignation as a member of the Company’s Board effective December 29, 2017. Mr. Fallon was elected to the Board on May 3, 2017. Messrs. Brown and Fallon received no compensation for their services as a Director during 2017.

Directors stock ownership guidelines. The Company has Director stock ownership guidelines to align Directors’ interests with those of our shareholders. Under these guidelines, within four years of first being elected, a Director is expected to own Company stock worth approximately five times their annual retainer. This includes shares of Common Stock held directly, Common Stock equivalent deferral units held under the MBIA Inc. 2005 Non-employee Director Deferred Compensation Plan and restricted stock awarded to directors. Four out of our five Directors have met and exceeded the Company’s stock ownership guidelines for Directors. The remaining Director, who was appointed in 2016, is on track to meeting the ownership guidelines.

 

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Audit Committee report

The Audit Committee is composed of five Independent Directors who are not employees or officers of the Company. In the business judgment of the Board, these Directors are free of any relationship that would interfere with their independent judgments as members of the Audit Committee.

This report of the Audit Committee covers the following topics:

 

1. Respective roles of the Audit Committee, Company management and the Independent Registered Public Accounting Firm (“Independent Auditors”)

 

2. 2017 Activities

 

3. Limitations of the Audit Committee

1. Respective roles of the Audit Committee, Company management and the Independent Auditors

We are appointed by the Board of Directors of the Company to monitor (i) the integrity of the financial statements of the Company and of other material financial disclosures made by the Company, (ii) the qualifications and independence of the Company’s independent auditor, (iii) the performance of the Company’s internal audit function and independent auditor, (iv) the Company’s compliance policies and procedures and its compliance with legal and regulatory requirements and (v) the performance of the Company’s operational risk management function. We also recommend to the Board of Directors the selection of the Company’s outside auditors.

The function of the Audit Committee is oversight. The management of the Company is responsible for the preparation, presentation and integrity of the Company’s financial statements. Management and the Company’s Internal Audit Department are responsible for maintaining appropriate accounting and financial reporting principles and policies and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations.

The independent auditors, PricewaterhouseCoopers LLP (“PwC”), are responsible for performing an independent audit of the consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”) and expressing an opinion with respect to the fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and the effectiveness of internal control over financial reporting.

2. 2017 Activities

In performing our oversight role for 2017, we have:

 

 

considered and discussed the audited financial statements for 2017 with management and the independent auditors;

 

 

discussed and reviewed all communication with the auditors, as required by PCAOB Auditing Standard No. 16, “Communications with Audit Committees” and SEC Rule 2-07, “Communication with Audit Committees.” We have received a letter from the independent auditors as required by PCAOB Rule 3526, “Communications with Audit Committees Concerning Independence.” In connection with this requirement, PwC has not provided to the Company any information technology consulting services relating to financial information systems design and implementation;

 

 

considered the other non-audit services by the Company’s independent auditors and concluded that such services were not incompatible with maintaining their independence;

 

 

reviewed and discussed with management and PwC the Company’s critical accounting policies, estimates and judgments;

 

 

reviewed the various matters and questions recommended by the PCAOB in its May 2015 publication, “Audit Committee Dialogue”, to ensure that we addressed with PwC those matters and questions relevant to the Company; and

 

 

performed other functions as set forth in the Audit Committee Charter (a copy of which can be found on the Company’s website, www.mbia.com, under the “Ethics and Governance” link).

 

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Based on the reviews and discussions we describe in this report, and subject to the limitations on the role and responsibilities of the Audit Committee referred to below and in the Audit Committee Charter, we recommended to the Board of Directors that the Company’s audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

3. Limitations of the Audit Committee

As members of the Audit Committee, we are not employees of the Company nor are we professionally engaged in, nor experts in the practices of, auditing or accounting. Nor are we experts with respect to determining auditor independence. We rely on the information, representations, opinions, reports or statements, including financial statements and other financial data prepared or presented by officers or employees of the Company, its legal counsel, independent accountants or other persons with professional or expert competence. Therefore, we do not assure that the audit of the Company’s financial statements has been carried out in accordance with the standards of the PCAOB, that the financial statements are presented in accordance with generally accepted accounting principles or that PwC is in fact “independent.” Furthermore, the Audit Committee has not conducted independent procedures to ensure that management has maintained appropriate accounting and financial reporting principles or internal controls designed to assure compliance with accounting standards and applicable laws and regulations.

Date: February 12, 2018

The Audit Committee

Mr. Theodore Shasta (Chair)

Mr. Francis Y. Chin

Mr. Steven J. Gilbert

Mr. Charles R. Rinehart

Mr. Richard C. Vaughan

This report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

 

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Compensation Discussion & Analysis

In this section:

 

     Page

Letter from the Compensation and Governance Committee

  11

Compensation Design

  14

Compensation Approach

  16

Compensation Governance

  18

2017 Compensation Decisions and Outcomes

  25

Additional Information

  34

2017 Compensation Details and Supporting Tables

  36

You will find that the following terms are used in this section and we note below the meanings in the interest of clarity.

 

   
Term    Meaning
Annual Incentive    Compensation that can be earned based on performance measured over a one-year period
Forfeit    Share awards that were given up at the end of the performance period
Long-Term Incentive(s)    Compensation that can be earned after a period of three-years based on either performance measured over that period (performance-based long-term incentive awards) or continued employment (time-based long-term incentive awards)
Lapse    Share awards that were not earned or paid due to the associated performance conditions not being achieved
MBIA    Equivalent to MBIA Inc., the parent and holding company in whom you hold shares
MBIA Insurance    MBIA Insurance Corporation
National    National Public Finance Guarantee Corporation
Performance-based compensation    Compensation that is payable contingent on the achievement of associated performance conditions, annual incentive compensation and performance-based long-term incentive awards
Target Total Compensation    The aggregate value of base salary, target annual incentive and the target value of long-term incentive awards
Variable Compensation    Compensation that can change in value based on either the achievement of associated performance conditions, or the value of MBIA’s stock price

 

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Letter from the Compensation and Governance Committee

On behalf of the Compensation & Governance Committee (the “Committee”), and the MBIA Board of Directors (the “Board”), I am pleased to introduce our Compensation Discussion & Analysis. This section of our Proxy Statement provides insight into our executive compensation program, including the key decisions made during the year and the associated outcomes.

Highlights of the 2017 changes to our executive compensation program

Though an improvement over the prior year, the 70% approval of the say-on-pay vote at our 2017 Annual Meeting remained a disappointing outcome for the Committee and the Board. The modest improvement reflected the positive changes undertaken in 2016 to address shareholder feedback, in connection with the award to our Named Executive Officers (“NEOs”) of long-term incentive compensation. However, the overall result confirmed we had not gone far enough. Accordingly, throughout 2017 and into 2018, we enhanced our shareholder engagement and devoted a significant portion of our activities to evaluating our executive compensation program, looking at it critically in light of shareholder feedback, and making the additional changes described below.

In considering the potential changes, the Committee reflected on balancing our views of how best to manage compensation at MBIA given its unique and significant role in the complex field of municipal finance, and the continuing uncertainty and challenges facing the Company, with the range of diverse expectations expressed by our shareholders and the proxy advisors that they engage. You can find more information on page 19, but in summary, we approved the following changes to our executive compensation program in response to feedback:

 

   
Expressed Concern    Response
Use of out-sized peers   

•  Updated compensation peer group effective 2017

 

•  Removed peers from prior group that are now significantly larger than MBIA

 

•  Better alignment with shareholder expectations

 

•  Resulted in MBIA ranking in the third quartile in terms of market capitalization and the first quartile in terms of revenue

Market positioning of compensation against out-sized peers   

•  Determined that NEO compensation would be set with reference to a 50th percentile market positioning against the revised, smaller compensation peer group

Absolute levels of compensation for CEO   

•  New CEO will have a lower total direct compensation package than predecessor

 

•  Updated peer group provides lower market reference points as a result of revisions

Fully discretionary nature of the annual incentive award   

•  Approved application of MBIA’s quantifiable strategic scorecard in determining NEO annual incentive awards for 2017 and 2018

 

•  Scorecard is used to determine annual incentive awards across the broader organization, meaning NEO compensation is based on the performance measures established for the larger employee population

 

•  Resulted in award of 2017 bonuses significantly below NEO target levels, as a result of applying performance metrics that are defined, measurable and/or objective, and which are tied to our strategic objectives

The changes described above are part of a longer-term evolution in MBIA’s executive compensation programs since 2014. Other notable changes across our annual and long-term incentive compensation in response to feedback include:

 

   

Reductions in NEO target annual incentive compensation;

 

   

Formalization of a performance-based long-term incentive awards program, with pre-established target award values;

 

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Increased number of performance-based components of compensation for NEOs following the introduction of performance-based share awards for the 2016 performance year, with such shares granted in March 2017; and

 

   

Use of qualitative and quantitative performance metrics to balance short-term and long-term growth, and discourage excessive risk-taking.

We trust that these changes will further demonstrate our commitment and intention to better align our executive compensation programs with shareholder expectations, while being conscious of the needs of the business to retain and motivate our leadership team to deliver long-term sustainable performance.

As a Committee and a Company, we will continue to monitor feedback and engage with major shareholders in recognition of the value this input has into our decision-making process.

Pay and performance for 2017

Ensuring the alignment of pay and performance is a core focus of our executive compensation program. This priority is evident in our use of performance-based pay, which aligns to both MBIA’s strategic drivers and long-term shareholder value creation. If performance falls below the expectations we set of management, the performance-based portions of their compensation, if paid at all, will fall below target.

 

As noted above, in 2016 we formally introduced a performance-based share component to our long-term incentive program, first applicable to awards made in 2017 in respect of 2016 performance. Prior to that, performance-based share awards had generally been made on an ad-hoc basis to address specific needs or in lieu of cash compensation. By formalizing this program, we provide an on-going ability to more meaningfully adjust pay based on annual and longer-term performance. Additionally, we can better align our programs with the experience of our shareholders, while minimizing the potential need to consider one-off or ad-hoc awards.

 

   LOGO

To take pay-for-performance one step further, in response to feedback from shareholders as reflected in our say-on-pay results, we have changed our approach to annual incentive awards in 2017. The application of CEO and Committee discretion is limited, with NEO awards contingent on the results of the MBIA scorecard of performance metrics that are defined, measurable and/or objective. These performance metrics are all derived from MBIA’s three-year tactical and strategic plan. So, what we are incentivizing and rewarding for today feeds into the long-term future of MBIA.

As shown in the graph above, 73% of the CEO’s target total compensation for 2017 was variable, the majority of which is performance-based. For 2018, 76% of the CEO’s target total compensation and 72% of the other NEOs’ respective target total compensation will be variable.

Outcomes under the performance-based aspects of our compensation programs for 2017 were as follows:

 

   

Annual incentive awards for all NEOs, including the CEO, at 78% of target, primarily driven by below-target performance relative to Combined Operating Income, ABV, new business and ratings targets, and remediation activity relating to the Company’s Puerto Rico exposures; and

 

   

The performance-based element of share awards made to NEOs in both 2012 (Messrs. Fallon, McKiernan and Wertheim) and 2014 (Mr. Brown), lapsed in full due to the threshold share price requirement not being achieved for either of the two tranches, which were otherwise due to vest at the end of 2016 and the end of 2017. Except for Mr. Wertheim these NEOs realized no value despite a reported aggregate grant date value of $18.8 million. In connection with his severance arrangement Mr. Wertheim received a payment in exchange for his agreement to forfeit the performance-based shares due to vest in December 2017, which would have lapsed.

 

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The performance-based share awards made to NEOs in 2017 under our formal annual program are subject to performance conditions tied to our adjusted book value (“ABV”), leverage and MBIA’s value that are measured through either absolute stock price or absolute total shareholder return. For awards made in early 2018 in respect of 2017, performance will be based solely on either absolute stock price or absolute total shareholder return performance. We are committed to ensuring that the majority of our NEOs’ compensation is performance-based.

Other key activities undertaken by the Committee during the year included reviewing compensation for promoted and newly appointed NEOs, and agreeing to the terms of separation with Ram Wertheim, the Company’s former Chief Legal Officer, which are discussed in more detail in this report.

New disclosures for 2018

This is our first Proxy Statement in which we are publishing our CEO pay ratio, in accordance with SEC requirements. Page 34 provides details of the methodology and approach taken in calculating this ratio. This work found that the ratio of CEO pay to median employee pay at MBIA is 14:1.

Looking to the future

We hope that our shareholders recognize and support the changes made to our executive compensation programs during 2017. We believe that these changes demonstrate continued responsiveness to the feedback we have received as we seek to appropriately balance the needs of the business with a broad range of shareholder and proxy advisor perspectives. These changes, coupled with those already made in 2016, place an emphasis on pay for performance, align with ongoing shareholder interests, and maintain a means through which to attract, retain and motivate a committed senior leadership team as we continue to navigate challenging market conditions.

While at this point in time no changes to our programs are anticipated in 2018 other than minor adjustments to our performance measures, we welcome shareholder feedback and will keep our programs, policies and practices subject to annual review.

On behalf of the Compensation & Governance Committee,

Steven J. Gilbert

Compensation & Governance Committee

Steven J. Gilbert, Chair

Francis Y. Chin

Charles R. Rinehart

Theodore E. Shasta

Richard C. Vaughan

 

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Compensation Design

Our approach to compensation encompasses a number of components which, working in tandem, generate the solid executive compensation program we have in place as we head into 2018. As you will see in the sub-sections that follow, our compensation strategy is tied closely with our overall corporate strategies in a number of key ways, and those strategies are executed via policies and practices that best support shareholder interests.

Compensation Strategy

Our compensation program is designed to attract, retain and motivate a highly skilled team of senior executives whose collective performance will build sustainable shareholder value, align our senior executives’ interests with those of shareholders and avoid unnecessary or excessive risk.

We achieve these goals through a combination of fixed and variable compensation elements, with variable compensation contingent on successful performance in areas of critical strategic significance to MBIA and its shareholders, thus tying pay with MBIA’s performance.

Alignment with MBIA’s Corporate Strategies

To be successful in effectively tying pay to MBIA’s performance, it is critical that we align our compensation strategy with our overall corporate strategies.

MBIA is one of the largest operators in the financial guaranty insurance industry. Our primary business has been to provide financial guarantee insurance to the United States’ public finance markets through our indirect, wholly-owned subsidiary, National. National’s financial guarantee insurance policies provide investors with unconditional and irrevocable guarantees of the payment of the principal, interest or other amounts owing on insured obligations when due. MBIA has also provided financial guarantee insurance in the international and structured finance markets through its subsidiary, MBIA Insurance.

MBIA’s overarching focuses today are threefold:

 

   

ensuring adequate liquidity exists at the holding company to satisfy all outstanding obligations;

 

   

mitigating losses at National and MBIA Insurance while maximizing recoveries on paid insurance claims; and

 

   

ensuring that we continue to honor all policyholder claims.

Until midway through 2017, we were also focused on National’s re-entry as a meaningful provider of new municipal financial guaranty policies. Following a downgrade of National’s financial strength ratings this effort ceased.

In February 2017, consistent with these areas of focus, senior management proposed a scorecard of corporate metrics to the Board, against which the 2017 MBIA performance would be measured. This scorecard identified several broad performance categories for each of MBIA, National, MBIA Insurance, and the collective enterprise, with sub-goals established to measure performance within each category. In connection with its efforts to align the interests of senior management with those of our shareholders, in the second half of 2017, the Board determined that it would use the quantitative score generated by this scorecard as the basis for evaluating and approving NEO annual incentive awards.

 

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The 2017 performance metrics represented in the 2017 scorecard include the following:

 

   
Performance Metric    Why it Matters
National Insured Portfolio Management    Effectively managing National’s portfolio (including its exposures relating to Puerto Rico) is critical to the long-term safety of National policyholders and the economic value proposition for our shareholders
Expense Management    Focusing on expense management ensures MBIA is efficient in allocating resources where needed while complying with capital and liquidity requirements
Adjusted Book Value    Targeting defined ABV goals provides a focus on the growth in the value of MBIA for our shareholders
Operating Income    As with ABV, targeting levels of Operating Income enables an assessment of MBIA’s operational performance and profitability in an objective manner
MBIA Liquidity    Optimizing liquidity at the holding company, by ensuring adequate resources exist to meet future obligations, and properly managing the strategic use of capital through share and/or debt buybacks, is of paramount importance to MBIA’s long-term financial health
MBIA Insurance Portfolio Management and Balance Sheet Management    Evaluating the effective management of the portfolio and balance sheet of MBIA Insurance ensures that appropriate incentives exist for the benefit of policyholders and creditors
People Management    Ensuring MBIA remains focused on attracting and retaining high potential employees and improving workforce diversity is important to ensure our ability to execute our other goals

Compensation Practices

As with all things, execution matters, and MBIA has adopted a number of policies and practices which we believe are in the best interests of our shareholders.

 

   
Best Practices and policies that we follow    Practices that we do not follow

•  Deliver the majority of target compensation in the form of variable pay

 

•  Tie variable pay to successful performance in areas of strategic significance

 

•  Assess performance both quantitatively and qualitatively to ensure appropriate outcomes

 

•  Cap the cash annual incentive opportunity

 

•  Use equity vehicles, and operate stock ownership guidelines and stock retention requirements beyond retirement, to directly align NEO interests with those of shareholders

 

•  Phase the vesting of equity awards over 3 – 5 year periods

 

•  Operate a clawback policy

 

•  Apply double-trigger for change in control payments

 

•  Prohibit short sales, hedging or pledging of our stock

 

•  Engage an external independent advisor

  

•  Provide guaranteed bonuses

 

•  Encourage excessive risk

 

•  Provide excessive perquisites

 

•  Make decisions solely based on market data

 

•  Offer employment contracts

 

•  Grant back-dated or make-up incentive awards

 

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Compensation Approach

The MBIA executive compensation program comprises three core elements: a base salary, annual cash incentive opportunity and long-term incentive opportunity, delivered in the form of MBIA stock.

The majority of compensation for our CEO and other NEOs is delivered in the form of performance-based compensation, the weighting of which has increased in recent years based on shareholder feedback. In 2017, 59% of the CEO’s target compensation and 58% of the NEOs’ respective target compensation (on average) was performance-based.

 

LOGO

In addition to the compensation outlined on the following page, MBIA’s executives receive the same benefits as our general employee population. This includes participation in healthcare benefits, where MBIA shares in the cost of employee health insurance coverage; supplemental disability insurance to bring the income replacement benefit to a level equivalent to 70% of base salary; and contributions to defined contribution retirement programs based on a stated percentage of the employee’s compensation. No perquisites are paid to current NEOs.

 

 

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Element and Purpose   Key Features   Performance Measures   Changes for 2018

Base Salary

 

To compensate executives competitively for their roles at MBIA

 

•  Fixed pay

 

•  Set with reference to peer group median

 

•  Level also takes account of scope of role and prior experience

 

•  Reviewed annually

 

•  Not applicable

 

•  Increases for select NEOs have been approved and range from 8% – 13%

Annual Incentive Award

 

To drive performance against critical short-term strategic imperatives and reward appropriately

 

•  Variable pay delivered in cash

 

•  Value determined based on performance against pre-defined objectives

 

•  Target values set with reference to peer group median

 

•  Actual bonus can range from 0% to 200% of target

 

•  Based on performance against the corporate scorecard of quantifiable objectives

 

•  Performance goals based on MBIA’s three-year tactical and strategic objectives

 

•  None currently planned

       
Long-Term Incentive
Compensation
              

Performance-Based Shares

 

To drive performance against critical strategic imperatives that create sustainable long-term shareholder value, align senior leader interests with shareholders and reward appropriately

 

•  Variable pay delivered in equity

 

•  Accounts for two-thirds of the total long-term compensation

 

•  Target values set with reference to peer group median

 

•  Target award value of 100% of base salary

 

•  Actual payout can range from 0% to 200% of target award

 

•  Earned shares vest in equal installments on the third, fourth and fifth anniversaries of date of grant

 

•  Earned shares vest subject to continued employment and performance

 

•  Based on assessment against quantifiable performance measures

 

•  Vesting of 2016 awards made in 2017, will be based on three equally weighted measures: adjusted book value, leverage and stock price or total shareholder return

 

•  Vesting of 2017 awards made in 2018, will be based solely on stock price or total shareholder return

 

•  Performance is assessed at the end of the three-year performance period (December 31, 2019 for the March 2017 awards)

 

•  In 2018, all NEOs will receive performance-based share awards

 

•  Our NEOs appointed in September 2017 had already received their LTI awards in respect of 2016 prior to becoming NEOs; their LTI awards going forward will feature Performance-Based shares

Time-Based Shares

 

To provide a focus on sustainable long-term shareholder value creation, align senior leader interests with shareholders, reward appropriately and retain senior leaders

 

•  Variable pay delivered in equity

 

•  Accounts for one-third of the total long-term compensation

 

•  Target values set with reference to peer group median

 

•  Target award value of 50% of base salary

 

•  Shares vest in equal installments on the third, fourth and fifth anniversaries of date of grant

 

•  Awards vest subject to continued employment

 

•  Continued employment

 

•  No change

 

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Compensation Governance

There are a number of factors that come together to ensure proper governance of MBIA’s compensation programs. This section will look at these in turn, discussing the importance and function of each.

Compensation Oversight

The Compensation and Governance Committee comprises MBIA’s five independent outside directors, each of whom was recruited to join MBIA on account of their expertise and seniority in a substantive area (such as municipal finance, banking, accounting and/or asset management) of relevance to MBIA’s core strategic agenda. During 2017, the Committee met five times in regular session and has overall responsibility for overseeing MBIA’s compensation programs, providing input and recommendations to the Board regarding our NEOs’ compensation.

The Compensation and Governance Committee receives information and support from management, and expert guidance from an independent committee advisor, both of which impact the ultimate recommendations the Committee makes to the Board.

 

LOGO

Additional information on the Committee can be found on page 3 in the Board of Directors – corporate governance section.

Use of an Independent Advisor

Since 2009, the Committee has retained Willis Towers Watson as an advisor to provide independent advice on a range of compensation issues. This primarily involves assisting in analyzing the competitiveness of NEO and non-employee director compensation, reviewing incentive design, periodically assisting in reviewing competitive peer group and other activities as directed by the Committee. The Committee uses Willis Towers Watson’s advice and insight to inform the eventual decision making process.

In assessing Willis Towers Watson’s independence, the Committee considered the six independence factors for compensation consultants listed in the NYSE listing requirements and determined that Willis Towers Watson did not have a conflict of interest.

Shareholder Engagement

MBIA takes shareholder outreach and feedback seriously, and senior management interacts regularly with our shareholders from year to year. Additionally, in recent years the Committee has promoted and, on occasion, participated directly in an extensive shareholder engagement program to ensure we are able to receive direct and constructive feedback to inform our thinking on NEO compensation. This feedback has had a meaningful impact on both our compensation philosophy and program design.

 

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As part of our continuing effort to better understand the expectations of our shareholders, and to be responsive to their questions, comments and feedback, in 2017 and early 2018, senior management and the Committee undertook extensive shareholder outreach, in particular following the issuance of the 2017 Proxy.

 

Led by our former CEO, Jay Brown, current CEO Bill Fallon, and Head of Investor Relations Greg Diamond, we engaged with shareholders representing in excess of 52% of our outstanding shares at March 31, 2017, either in person or by phone.

  

2017/18 Shareholder Engagement

 

•  Engaged with shareholders accounting for 52% of outstanding shares

 

•  Reviewed Glass Lewis and ISS reports

 

•  Feedback resulted in changes to three areas of our compensation program, building on other changes made in 2016

The majority of meetings took place after the annual shareholder meeting in May of 2017, when we received the results of the say-on-pay vote. These calls and meetings provided an open forum to discuss those topics which were of most significance to our shareholders, which included but was not limited to executive compensation.

In addition, we offered the specific opportunity to discuss our compensation program, through a meeting with the Chairman of our Compensation and Governance Committee, Steve Gilbert, without management present, to shareholders representing approximately 46% of our outstanding shares at year-end 2016. Of those who engaged with us on that topic, the results substantially supported our program, including the changes we made in 2017 to the long-term incentive compensation of our NEOs. However, the proxy advisors, whose feedback was adopted by many of MBIA’s shareholders with whom we did not have the chance to speak, identified a number of areas that continued to cause concern, which the Committee documented as part of a detailed review.

As a result of this review, the following changes to our compensation program have been approved.

 

     
Area of Feedback   Concerns   MBIA Response
Changes as a result of 2017 engagement
Compensation peer group  

•  Use of out-sized peers

 

•  During 2017, the compensation peer group was updated to better align with shareholder expectations

 

•  This resulted in MBIA ranking in the third quartile in terms of market capitalization and the first quartile in terms of revenue

 

•  The largest peer company has reduced from $5,749m to $1,575m in terms of 2016 revenue

Compensation levels  

•  Market positioning of compensation against peer group

 

•  Absolute levels of compensation

 

 

•  As noted above, the compensation peer group has been reduced to better reflect MBIA’s size

 

•  Compensation has been realigned and will be set with reference to the 50th percentile of the revised (smaller) peer group

 

•  The new CEO and new NEOs have materially lower levels of target compensation than their predecessors (ranging from approximately 35% to 65% lower)

 

•  This builds on momentum from prior years which has seen material reductions in NEO incentive pay opportunities at target and maximum

 

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Changes as a result of 2017 engagement
Annual Incentive Plan design  

•  Fully discretionary nature of the plan

 

•  For 2017, the Committee determined to use the results of the MBIA scorecard of strategic objectives in four core areas to evaluate and approve annual incentive awards for NEOs

 

•  This scorecard is the same as that used across the broader organization resulting in a ‘one-for-all’ approach

 

•  Following an assessment at the end of 2017, the Committee exercised no discretion to modify the scorecard results

 

•  For 2018, the Committee plans to continue using a scorecard approach, to allow for an objective and quantitative assessment of MBIA and individual performance

Changes as a result of 2016 shareholder engagement
Proportion of performance-based compensation  

•  Insufficient proportion of compensation based on MBIA performance

 

•  NEO long-term incentive compensation was restructured such that two-thirds of awards are now subject to performance conditions

 

•  For awards made in 2017 in respect of 2016, performance is being measured against three quantitative metrics from December 31, 2016 to December 31, 2019

 

•  For awards to be made in 2018, in respect of 2017, performance will be measured against a single quantitative metric based on either stock price or TSR performance from December 31, 2017 to December 31, 2020

 

•  Performance targets will be fully disclosed in the CD&A

 

•  The nature of any performance conditions that apply to future awards will be kept under review to ensure they continue to align with the long-term goals of MBIA, and based on our ability to set meaningful targets

 

•  It should be noted that for long-term incentive awards made in 2017, four of the present six NEOs did not receive performance-based share awards. This is because they were granted long-term incentive awards in February 2017 in the form of time-based restricted shares, prior to being appointed as NEOs in September 2017. From 2018 onwards, their long-term incentive awards feature the same ratio of performance-based to time-based shares as has been applied to other NEOs since March 2017.

 

•  The Committee also adopted a longer time horizon than typically observed in the market, with performance measured over three years and vesting, if any, phased over years 3-5

 

Looking to the future, MBIA is committed to maintaining ongoing dialogue with our major shareholders to ensure we remain fully aware of shareholder expectations and concerns.

 

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The Annual Process

The Committee is responsible for reviewing the design, levels and outcomes under MBIA’s NEO compensation program, along with associated feedback from shareholders. It typically meets five times per year to execute upon the various procedural steps outlined below.

 

LOGO

•  Review and assess prior year performance of CEO and leadership team

 

•  Recommend compensation to be paid to CEO and leadership team for the prior year

 

•  Review and approve CEO’s recommendations for aggregate level of compensation to be paid to all other employees for the prior year

 

•  Evaluate compensation policies and practices to determine whether either will create risks

 

•  Review and approve the overall compensation policy taking into consideration results of say-on-pay vote from prior year

 

•  Establish and recommend compensation to be paid to CEO and leadership team for current year

 

•  Review and approve CEO goals and objectives for current year

 

•  Review and approve compensation disclosures in Proxy and Form 10-K

  

•  Recommend committee and chair assignments for Board members

 

•  Discuss investor outreach and status of shareholder votes

 

•  Discuss shareholder advisory reports

  

•  Perform peer group review

 

•  Receive regulatory update

 

•  Review the results of the say on pay vote

  

•  Oversee annual evaluation of the Board and Board Committees, including the Committee structure

 

•  Review Director performance

 

•  Review and approve Committee Charter

 

•  Review NEO compensation relative to market

 

•  Review Director compensation relative to market

 

•  Preview drafts of Proxy tables

 

•  Assess external advisor independence

Managing Compensation-Related Risks

Risk is a central part of MBIA’s business, and appropriately managing that risk is critical to our success. Our approach to risk management is evident in the very core of our business. Our values embrace integrity, through our Standard of Conduct, and underscore our commitment to performance excellence.

The Committee’s role relative to risk mitigation is to design and review our compensation programs to ensure that they do not encourage unnecessary, inappropriate or excessive risk-taking. The Committee’s role spans the structure of the programs themselves, including the weighting of the relative components of compensation, along with the targets attached to variable compensation opportunities. Each year, the Committee assesses MBIA’s compensation policies and practices to evaluate whether they create risks that are reasonably likely to have a material adverse effect on MBIA.

In conducting this assessment the Committee considered a range of areas, including:

 

   

The performance measures, and their relative balance, used within our incentive plans;

 

   

the attributes of MBIA’s compensation practices, such as pay mix and the range of potential minimum to maximum payouts; and

 

   

the design of MBIA’s broader compensation policies.

 

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Based on its 2017 assessment, the Committee concluded that the compensation policies and practices do not create incentives to take risks that are reasonably likely to have a material adverse effect on MBIA, while providing adequate incentives to build sustainable long-term shareholder value.

There are a number of features of our executive compensation programs that demonstrate our strong commitment to appropriately mitigating compensation-related risk which are considered as part of this assessment, and we will look at each of these in turn.

Use of Discretion and Judgment. To discourage imprudent risk taking by our NEOs, when assessing outcomes under the annual incentive plan, the Committee takes account of performance against the established objectives, as well as a macro level view of performance and behaviors. This enables the Committee to assess not only MBIA’s accomplishments, but also how these accomplishments were achieved.

If needed, the Committee can use its discretion to adjust, up or down, annual incentive awards to take into account any unanticipated or extraordinary events, or broader performance that did not align with expectations or poor risk management.

Clawback. In February 2013, MBIA adopted a Clawback Policy which covers all compensation paid or awarded after January 1, 2010. The policy is intended to promote ethical behavior and accountability with respect to the accuracy of financial reporting. The following table summarizes the key features of the policy:

 

   
Aspect    Features
Covered executives   

•  Any Named Executive Officer

 

•  All executives with the title ‘Managing Director’ or above, at the time of a restatement or any time during the three-year period preceding the restatement

Triggering event   

•  A material restatement of our GAAP financial statements which means that any compensation paid to a Covered Executive would have been lower

Compensation   

•  Any annual or long-term incentive, whether it is paid in cash or equity

Determining the value of a clawback   

•  Amount determined at the Committee’s discretion

 

•  Takes into account the difference between the amount that was paid or granted and the amount that would have been paid or granted under the restated financial statements

Application   

•  At the Committee’s discretion

 

•  Incentive compensation must either be repaid or forfeited

This policy will be reviewed from time to time, to consider potential changes that may reflect evolving best practices, regulation, MBIA’s circumstances, or other relevant factors.

 

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Stock Ownership Guidelines. MBIA has implemented stock ownership guidelines which were adopted to align senior management’s interests with those of our shareholders. Under these guidelines, certain senior employees are expected to own MBIA stock worth a value equal to a multiple of their base salary.

 

   
Role    Ownership Guideline
(Multiple of Base Salary)
 

Chief Executive Officer

     7x  

Chief Financial Officer and other NEOs

     3x  

As of December 31, 2017, the Chief Financial Officer has already exceeded his ownership guidelines, with other NEOs making progress toward their guidelines in light of their respective appointment dates. In assessing achievement, stock owned directly and any stock held in retirement plans will be counted. Interests such as the value of unvested restricted stock or unvested stock options are not counted.

Stock Holding Periods. Once an NEO has achieved his or her ownership guideline, they are permitted to divest 25% of any excess above the guidelines during any 12-month period while the individual is still employed. Individuals are also permitted to sell stock for the purpose of settling taxes on long-term incentive awards. Notably, no current NEO has ever sold any MBIA stock other than as an offset to the taxes incurred when shares vested.

Upon retirement, individuals are permitted to sell one-third of his or her holdings immediately, one-third a year after termination and the final third two years after termination. This does not preclude any individual electing to maintain his or her holdings for a longer period of time.

Anti-Hedging Policy. MBIA’s Insider Trading Policy prohibits Directors, officers and employees from engaging in short sales or transactions involving puts, calls and other types of options in MBIA’s securities, including equity swaps and similar derivative transactions. The Insider Trading Policy also prohibits Directors, officers and employees from (i) engaging in hedging transactions, (ii) pledging MBIA securities as a collateral, or (iii) holding MBIA securities in a margin account , without the prior approval of such transactions by the MBIA Legal Department.

Compensation Peer Group

Another integral part of our compensation governance is the review of where MBIA’s compensation programs fall relative to what others are doing in the market. When reviewing our compensation programs, while keeping a keen focus on what is in MBIA’s and shareholders’ best interests, the Committee’s understanding of market practices to assess the competitiveness and appropriateness of compensation is an important consideration as well.

As noted earlier in the report, we have received feedback expressing concerns on the composition of our compensation peer group. In response to these concerns, the Committee undertook a review of the peer group during 2017, the results of which have been adopted with immediate effect.

 

Principles for identifying compensation peers

 

•  Operate in similar or comparable industry segments: Property and Casualty Insurance, Reinsurance

 

•  Subject to similar legal or regulatory environments

 

•  Comparable in size and scope

 

•  Competitor for talent

   One of the challenges for MBIA when establishing a peer group is the limited number of directly comparable organizations that still exist. As part of the review, the Committee discussed the underlying principles for identifying peers (at left), which it determined remain appropriate. However, some of the parameters (primarily size-related) were updated with 12 companies being removed from the peer group and 15 companies being added, resulting in a total compensation peer group of 20 companies. It is not necessarily the case that all the factors apply to every peer company. Ultimately, the Committee applied judgement in arriving at the composition of the final group.

 

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2017 Compensation Peer Group

 

•  Ambac Financial

 

•  Argo Group International

 

•  Assured Guaranty

 

•  Baldwin & Lyons*

 

•  EMC Insurance Group*

 

•  Employers Holdings*

 

•  Federated National Holding Company*

 

•  Global Indemnity Limited*

 

•  Greenlight Capital Re*

 

•  HCI Group*

  

•  James River Group Holdings*

 

•  Kinsale Capital Group*

 

•  MGIC Investment

 

•  ProAssurance Corp.*

 

•  RLI Corp.*

 

•  State National Companies*

 

•  Third Point Reinsurance*

 

•  United Insurance Holdings*

 

•  Universal Insurance Holdings*

 

•  White Mountains Insurance

    

Following the review, these companies have been removed from the Compensation Peer Group:

 

Allied World Assurance, AmTrust Financial Services, Arch Capital Group, Aspen Insurance, AXIS Capital, Cincinnati Financial, Everest Re Group, Old Republic International, PartnerRe, Radian, Selective Insurance Group and Hanover Insurance Group.

 

* New for 2017

       
       
       
       
       
       
       
       
       

 

In reviewing potential companies to add to or remove from the peer group, MBIA, with the help of Willis Towers Watson, considered the key principles outlined above. Specifically, there was a focus on companies that operate in the Property and Casualty Insurance and Reinsurance industries and that were roughly similar in size and scope to MBIA. Companies with revenues and market capitalization that were between 0.3x to 3x MBIA were also considered.

We consider it important to establish a robust peer group that is large enough to withstand potential changes to the composite companies. This process, along with the Committee’s review and judgment, resulted in the above 20-company peer group. At the time of the analysis, MBIA was ranked in the first quartile of the peer group from a revenue perspective and in the third quartile from a market capitalization perspective.

Further, the change in the peer group in favor of companies with the above size criteria naturally resulted in the reduction of median target compensation levels. For example, as of the time of the analysis, the reduction in peer group median target CEO compensation was approximately 50%.

 

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2017 Compensation Decisions and Outcomes

An Overview of Performance in 2017

While 2017 was a challenging year for MBIA, the Committee believes that the efforts of our senior team and broader employee base position MBIA to deliver long-term value for its shareholders in the future.

The year began with the promise, however challenging, of National meaningfully re-entering the market as a leading provider of municipal guaranty insurance. While National was making strides towards meeting or exceeding its internal new business targets, its downgrade by S&P in June resulted in our assessment that we could no longer compete with other providers of municipal guaranty insurance, and our decision to shut down National’s new business efforts. While disappointing, the cessation of new business did not have a material impact on our financial results, and the quick response to adapt to new business realities positioned us to right-size the organization and reduce the annual operating expense run rate by over $25 million to less than $75 million.

Circumstances in Puerto Rico, including the landfall of Hurricane Maria in September and its aftermath, also proved to be a significant hurdle. We significantly increased our loss and loss adjustment expenses to reflect these developments, which contributed to our inability to meet certain performance objectives. However, the efforts to remediate and manage our Puerto Rico exposures maximize our prospects for recovering the claims already paid by National and avoid it incurring additional future losses.

Given these challenging conditions, performance for the period ended December 31, 2017 resulted in

 

   

annual incentive awards worth 78% of target; and

 

   

the full lapsing without value of NEOs’ performance-based share awards that were due to vest in December 2017 and early 2018.

 

Our Named Executive Officers in 2017

 

Due to a number of changes in the senior leadership at MBIA in 2017, this CD&A will cover eight NEOs.

 

   
Named Executive Officer    Changes to Role During 2017

William C. Fallon

Chief Executive Officer

   Appointed to the Board in May 2017 and CEO in September 2017

Anthony McKiernan

EVP and Chief Financial Officer

   Appointed CFO in March 2016

Jonathan C. Harris

General Counsel and Secretary

   Appointed General Counsel and Secretary in March 2017 and Executive Officer in September 2017

Adam T. Bergonzi

AVP and National’s Chief Risk Officer

   Appointed Executive Officer in September 2017

Daniel M. Avitabile

AVP and MBIA Insurance’s President and Chief Risk Officer

   Appointed Executive Officer in September 2017

Christopher H. Young

AVP and National’s Chief Financial Officer

   Appointed Executive Officer in September 2017

Joseph W. Brown

Former Chief Executive Officer

   Resigned as CEO effective September 2017 and from the Board effective December 2017

Ram D. Wertheim

Former EVP and Chief Legal Officer and Secretary

   Mutually agreed departure from his role as Chief Legal Officer and Secretary in March 2017 and separated from MBIA as of year-end 2017

 

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The compensation of these NEOs in 2017 is explained in the following sections and in the Summary Compensation Table that follows.

Base Salary

Base salaries are generally set based on the job content of each position, informed by salary data for comparable positions within our compensation peer group. From time to time, adjustments are also made based on the executive’s experience, performance and potential. The Committee generally targets base salaries for the NEOs around the market median for executives in similar positions within the compensation peer group.

 

       
Named Executive Officer  

2017 Base Salary

 

   

Increase on 2016

 

   

Effective Date

 

William C. Fallon

  $ 900,000       9   September 2017, on promotion to CEO

Anthony McKiernan

  $ 500,000       0   No change since 2011

Joseph W. Brown

  $ 1,000,000       0   No change since 2013

Ram D. Wertheim

  $ 500,000       0   No change since 2009

On his appointment as Chief Executive Officer in September 2017, Mr. Fallon’s base salary was increased from $825,000 to $900,000, in recognition of the expanded scope of responsibilities in his role. This increase also took account of salary levels for comparable positions within our revised compensation peer group and was 10% lower than the former Chief Executive’s base salary.

The base salaries for Messrs. Harris, Bergonzi, Avitabile and Young on appointment as NEOs were as follows:

 

   
Named Executive Officer    Base Salary  

Jonathan C. Harris

   $ 325,000  

Adam T. Bergonzi

   $ 400,000  

Daniel M. Avitabile

   $ 325,000  

Christopher H. Young

   $ 325,000  

In February 2018 the Committee approved the following base salaries for NEOs, effective March 1, 2018:

 

     
Named Executive Officer    2018 Base Salary      Increase on 2017  

William C. Fallon

   $ 900,000        0

Anthony McKiernan

   $ 500,000        0

Jonathan C. Harris

   $ 350,000        8

Adam T. Bergonzi

   $ 450,000        13

Daniel M. Avitabile

   $ 325,000        0

Christopher H. Young

   $ 325,000        0

2017 Annual Incentive

The annual incentive is a performance bonus, paid in cash, which is designed to compensate NEOs for progress against MBIA’s three-year tactical and strategic objectives.

 

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In 2017, target bonus opportunities for the NEOs were as follows. The maximum bonus opportunity is capped at two-times the target opportunity.

 

   
Named Executive Officer    Target Bonus
(% of Base Salary)
 

William C. Fallon

     117

Anthony McKiernan

     120

Jonathan C. Harris

     108

Adam T. Bergonzi

     100

Daniel M. Avitabile

     108

Christopher H. Young

     108

Joseph W. Brown

     150

Ram D. Wertheim

     120

As noted, the Committee has taken steps to reduce annual incentive opportunities. For individuals appointed as Executive Officers during the year, target opportunities were lower than previous NEOs. This is also the case for the CEO.

Changes for 2017. In response to feedback, the Committee has taken steps to revert to a more formulaic annual incentive plan, from the discretionary approach taken in respect of 2016 performance.

The original change to a more discretionary approach reflected the continuing challenges associated with setting informed and realistic targets that rewarded appropriate risk-taking without unintended consequences, given the business environment in which MBIA operates.

The 2017 annual incentive for NEOs, as well as other associates at MBIA more broadly, is based on a scorecard of performance in four key areas: performance in our two operating subsidiaries, National and MBIA Insurance; performance within the corporate holding company level; and enterprise-wide performance. The objectives in each of these areas, along with the underlying performance targets, align to MBIA’s three-year tactical and strategic plan, providing direct alignment to our business strategy.

Annual Incentive Awards for 2017 Performance. The table below details highlights of the bonus scorecard for 2017, including the four areas and underlying performance objectives. Each area and goal had an associated weighting which was used to determine the overall score under the plan, and the chart below reflects the performance level assigned to each goal. The goals have been identified as strategic priorities, and are appropriate for inclusion in the annual incentive plan as they focus on areas that are of critical importance to the value proposition of shareholders, and on which senior leaders can take action today.

 

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2017 Annual Incentive Scorecard

 

           
     No Credit    

Below

Target

    Target     Above
Target
   

Overall % of

Target

 

National

            41

Insured Portfolio Management

           

Market Re-entry

           

Expense Management

                                   

MBIA Insurance Corporation

            94

Financial: Statutory Capital and Liquidity

           

Insured Portfolio Management

           

Expense Management

                                   

Corporate Segment

            125

MBIA Liquidity and Leverage

           

Expense Management

                                   

Enterprise Objectives

            75

Combined Operating Income

           

ABV

           

Expense Management: Consolidated Operating Expenses

           

People Management

                                   

Overall Formulaic Outcome

                                    78

 

Excluding Expense Management, which was achieved above expectations across the Company, performance highlights in each of the four areas were as follows:

 

   
National    MBIA Insurance Corporation

•  No credits moved to caution-high/classified list without having been reviewed in prior six months

 

•  Significant remediation efforts on Puerto Rico credits, including advocacy in federal courts, in the wake of challenges presented by Hurricane Maria, Title III filings, and fiscal stress

 

•  Downgrade by S&P resulted in a zero score for market re-entry

 

•  Cessation of new business efforts led to removal of new business objectives from scorecard in June 2017

  

•  Significant liquidity initiatives executed during year

 

•  Success in litigation efforts aimed at enhancing recovery of Zohar payments

 

•  Implemented remediation strategies which helped avoid additional multi-million dollar losses on RMBS

   
Corporate Segment    Enterprise Objectives

•  Liquidity initiatives led to a position of significant excess to target, enhancing Company ability to satisfy obligations during strategic plan period

  

•  Operating Income and ABV generated a score below target in a challenging year

 

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This performance resulted in a final annual incentive outcome of 78% of target, which equated to the following annual incentive awards in respect of 2017 performance for our NEOs:

 

     
Named Executive Officer    Target Bonus Opportunity      Actual Bonus  

William C. Fallon

   $ 987,500      $ 770,250  

Anthony McKiernan

   $ 600,000      $ 468,000  

Jonathan C. Harris

   $ 350,000      $ 273,000  

Adam T. Bergonzi

   $ 400,000      $ 312,000  

Daniel M. Avitabile

   $ 350,000      $ 273,000  

Christopher H. Young

   $ 350,000      $ 273,000  

Joseph W. Brown

   $ 1,500,000      $ 1,170,000  

Ram D. Wertheim

   $ 600,000      $ 468,000  

In February 2018 the Committee approved the following target bonus values for the NEOs in respect of 2018:

 

   
Named Executive Officer   

Target Bonus

(% of Base Salary)

 

William C. Fallon

     133

Anthony McKiernan

     120

Jonathan C. Harris

     109

Adam T. Bergonzi

     120

Daniel M. Avitabile

     108

Christopher H. Young

     108

2017 Long-Term Incentive Awards

In response to feedback from our shareholders, since March 2017 long-term incentive awards to NEOs are made in the form of a combination of performance-based and time-based share awards. This combination provides immediate alignment to shareholder value creation and long-term shareholder interests, as well as a focus on the strategic drivers of MBIA’s long-term performance.

MBIA’s approach to long-term incentive awards is such that a target award is established for the financial year, and contingent on sufficient performance in the year, the awards are granted shortly after the conclusion of the financial year. Accordingly, due to long-term incentive awards being made prior to four of our six NEOs being appointed as Executive Officers in September 2017, they did not receive a performance-based share award in 2017. This is because they had already received long-term incentive awards in March 2017 in the form of restricted shares following the conclusion of the 2016 financial year. Moving forward, their long-term incentive awards will feature the same ratio of performance-based to time-based shares as has been applied to other NEOs since March 2017.

 

     
Named Executive Officer    March 2017 LTI Mix      March 2018 LTI Mix  
  

Performance-

Based Shares

    

Time-Based

Shares

    

Performance-

Based Shares

    

Time-Based

Shares

 

William C. Fallon

     67      33      67      33

Anthony McKiernan

     67      33      67      33

Other NEOs (appointed September 2017)

     0      100      67      33

Joseph W. Brown

     -        -        -        -  

Ram D. Wertheim

     67      33      -        -  

 

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Mr. Brown was not eligible for any long-term incentive awards in 2017 in light of the special award he received in March 2014. Any shares that are earned will vest in equal installments on the third, fourth, and fifth anniversary of the grant date:

 

     
Performance-Based Award          Time-Based Award
Grant made March 2017    LOGO    Grant made March 2017
       
Performance assessed at December 31, 2019      
1/3rd earned shares vest March 2020       1/3rd vests March 2020
1/3rd earned shares vest March 2021       1/3rd vests March 2021

1/3rd earned shares vest March 2022

 

     

1/3rd vests March 2022

 

The same vesting schedule will apply to awards made in March 2018.

2017 Performance-Based Share Awards. Performance-based share awards are made in the form of MBIA equity and are subject to three equally-weighted performance measures which form part of our strategic priorities. For awards made in 2017, the level of vesting, if any, will be based on performance over the three financial years ending on December 31, 2019.

As with the annual incentive awards, the measures used to assess the level of vesting for our performance-based share awards are closely tied to our overarching strategy. An additional consideration when it comes to our performance-based share awards is the ability to set appropriate three-year performance targets. For awards made in March 2017, vesting is based on performance against three distinct and equally weighted performance measures.

 

   
Performance Measure    Why it Matters and How it is Defined

Adjusted Book Value

(ABV)

   Provides a focus on the long-term growth in the value of the company, which is needed to support MBIA’s future growth

 

ABV will be determined consistent with the 10-K definition for the year ended December 31, 2016, which is a non-GAAP measure. This is generally defined as GAAP book value minus the legal entity book value of MBIA Insurance Corporation (but including all deferred taxes available to the Company) and includes other adjustments for certain items that the Company believes will reverse from GAAP book value through GAAP earnings and other comprehensive income, and adds in the impact of certain items which the Company believes will be realized in GAAP book value in future periods.

Leverage

   Targets obtaining financial leverage consistent with ratings-agency models for an investment grade rating

 

Leverage will be equal to the sum of any outstanding debt issued by MBIA Inc. and its subsidiary Global Funding Corporation as of December 31, 2019 (“Debt”), divided by the total shareholders’ equity of the Company, adjusted to remove the legal entity book value of MBIA Insurance but including all deferred taxes available to the Company plus the sum of any Debt.

Company Value

   Provides direct alignment with the shareholder experience of value creation, assessed via either absolute stock price performance or, if a dividend is paid, absolute total shareholder return (TSR) performance
      Stock Price will be the average closing price of MBIA’s stock for the preceding 60 trading days ending on and including December 31, 2019
        TSR will be the compound annual return to shareholders as of December 31, 2019 using the stock price in effect on such date plus any dividends paid during the performance period

 

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The table below sets out the associated performance requirements for ABV, leverage, stock price and TSR for awards made in 2017, along with the corresponding percentage of shares that can be earned, ranging from 0% to 200% of the target award.

 

           

Percentage of shares earned at the end of the three-year performance period

(December 31, 2019)

 
     12/30/2016     0%     25%     50%     75%     100%     125%     150%     175%     200%  

ABV

  $ 31.88     $ 29.88     $ 30.38     $ 30.88     $ 31.38     $ 31.88     $ 33.00     $ 34.11     $ 35.22     $ 36.34  

Leverage

    27.00     25.00     24.25     23.50     22.75     22.00     21.50     21.00     20.50     20.00

Stock Price

  $ 10.70     $ 10.70     $ 11.35     $ 12.00     $ 12.75     $ 13.50     $ 14.25     $ 15.00     $ 15.85     $ 16.70  

TSR

    0.0     0.0     2.0     4.0     6.0     8.0     10.0     12.0     14.0     16.0

The following performance-based share awards were made with these conditions to NEOs in March 2017:

 

       
Named Executive Officer    Target Award Value ($)     

Target Award Value

(% of 2016 Base Salary)

     Number of Shares
Awarded
 

William C. Fallon

   $ 825,000        100%        86,926  

Anthony McKiernan

   $ 500,000        100%        52,681  

Joseph W. Brown

     Not Eligible        -        -  

Ram D. Wertheim

   $ 500,000        100%        52,681  

The performance period for these awards will conclude on December 31, 2019, with the vesting of any shares that have been earned taking place equally on the third, fourth and fifth anniversary of the date of grant.

2017 Time-Based Share Awards. Time-based share awards are made in the form of MBIA equity and will vest in equal installments on the third, fourth and fifth anniversaries of the date of grant. The following time-based share awards were made to NEOs during 2017:

 

       
Named Executive Officer    Award Value ($)     

Award Value

(% of 2016 Base Salary)

    

Number of Shares

Awarded

 

William C. Fallon

   $ 412,500        50%        43,058  

Anthony McKiernan

   $ 250,000        50%        26,096  

Jonathan C. Harris

   $ 400,000        133%        41,754  

Adam T. Bergonzi

   $ 122,400        36%        12,777  

Daniel M. Avitabile

   $ 125,000        45%        13,048  

Christopher H. Young

   $ 97,920        34%        10,221  

Joseph W. Brown

     Not Eligible        -        -  

Ram D. Wertheim

   $ 250,000        50%        26,096  

As with the performance-based share award, no time-based share award was made to Mr.Brown given that he was not eligible for any long-term incentive in 2017 in light of the special award he received in March 2014.

Vesting of Performance-Based Share Awards. Prior to 2016, share awards were made on an ad-hoc basis, either to address presenting business needs or in lieu of annual cash compensation. Such awards were made in 2012 and 2014 to members of the senior leadership team, half of which were subject to performance assessment as of December 31, 2016, and December 31, 2017. The remaining half were time-vested.

 

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For the period ended December 31, 2016, the conditions attached to the performance-based awards, which required MBIA’s average closing share price to be at least $10.00 for a period of 60 trading days prior to the end of the performance period, were not met. The balance was subject to a performance assessment as of December 31, 2017. The conditions attached to these awards, which required MBIA’s average closing share price to be at least $10.00 for a period of 60 trading days prior to the end of the performance period, were also not met. This resulted in the following portions of the awards lapsing:

 

           
Named Executive
Officer
 

Granted

(# of shares)

   

Granted

($000)

   

Vested

(# of shares)

   

Lapsed

December 31, 2016

(# of shares)

   

Lapsed

December 31, 2017

(# of shares)

 

William C. Fallon

    300,000     $ 1,912,006       0       150,000       150,000  

Anthony McKiernan

    200,000     $ 1,274,670       0       100,000       100,000  

Joseph W. Brown1

    1,500,000     $ 14,314,500       0       750,000       750,000  

Ram D. Wertheim2

    200,000     $ 1,274,670       0       100,000       N.A.  

 

1. The vesting dates for Mr. Brown’s two tranches of performance-based shares were January 2, 2017 and January 2, 2018.

 

2. In connection with his severance arrangement Mr. Wertheim received a payment in exchange for his agreement to forfeit 100,000 performance-based shares due to vest in December 2017, which would have lapsed.

The next performance-based share awards that will be considered for vesting were made in March 2017 and are subject to performance assessment over a three-year period ending December 31, 2019.

2018 Long-Term Incentive Awards

Long-term incentive awards made in 2018 (for the 2017 performance year) to each of the NEOs, other than Messrs. Brown and Wertheim, comprised a combination of performance-based shares and time-based shares. The aggregate annual target value of the long-term incentive awards for each NEO is 150% of base salary, with two-thirds of the award (100% of base salary) being in the form of performance-based shares and one-third (50% of base salary) in the form of time-based shares. This mix continues to align NEOs with delivering sustainable shareholder value creation, while linking pay to MBIA performance.

The vesting of 2018 performance-based share awards will be contingent on TSR or stock price over the three years ending on December 31, 2020. The performance condition will be TSR, unless MBIA does not pay a dividend during the performance period, in which case the performance condition will be the average closing price of MBIA’s stock over the 60 trading days preceding and including December 31, 2020.

The table below sets out the associated performance requirements for stock price and TSR for awards made in 2018, along with the corresponding percentage of shares that can be earned, ranging from 0% to 200% of the target award.

 

           

Percentage of shares earned at the end of the three-year performance period

(December 31, 2020)

 
     12/31/2017     0%     25%     50%     75%     100%     125%     150%     175%     200%  

Stock Price

  $ 7.32     $ 7.32     $ 7.78     $ 8.23     $ 8.72     $ 9.22     $ 9.74     $ 10.28     $ 10.84     $ 11.43  

TSR

    0.0     0.0     2.0     4.0     6.0     8.0     10.0     12.0     14.0     16.0

Consistent with the definitions used for the March 2017 awards, stock price performance would be assessed based on the average closing stock price of MBIA for the 60 trading days ending on and including December 31, 2020; and TSR performance would be assessed based on the compound annual return to shareholders as of December 31, 2020, using the stock price in effect as of that date plus any dividends paid during the prior three years.

There will be no changes to the vesting terms associated with the performance-based share awards.

 

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Other Elements of Compensation

In addition to the four core elements of compensation (base salary, annual cash incentive and long-term incentives in the form of time- and performance-based restricted stock), MBIA also provides other forms of indirect compensation which are summarized below.

Perquisites. MBIA does not provide any perquisites to current NEOs or any perquisites in connection with any severance or retirement agreements.

For former CEO Joseph Brown, MBIA made payments relating to the annual premium on a $25 million life insurance policy. The policy was purchased, for the benefit of Mr. Brown’s family, in 2013 and in conjunction, Mr. Brown agreed to forego certain compensation under MBIA’s incentive programs.

Benefits. MBIA’s NEOs receive the same benefits as our general employee population. This includes participation in the healthcare benefits, where MBIA shares in the cost of employee health insurance coverage; supplemental disability insurance to bring the income replacement benefit to a level equivalent to 70% of base salary; and contributions to defined contribution retirement programs based on a stated percentage of the employee’s compensation.

Retirement Programs. As noted above, NEOs receive contributions to defined contribution retirement programs based on a stated percentage of their respective compensation amounts. Our retirement program includes two qualified defined contribution plans as well as a non-qualified retirement plan. We do not maintain any defined benefit retirement plans.

Under the qualified retirement plans, all employees, including executives, receive the same Company contribution percentages, which include (subject to IRS limitations):

 

a) A money-purchase pension plan whereby the Company contributes each year an amount equal to 10% of earned salary and annual bonus and

 

b) A 401(k) plan whereby plan participants can contribute up to 25% of earned salary and annual bonus on a pre-tax and/or Roth after-tax basis, with the Company matching participants’ contributions up to 5% of earned salary and annual bonus.

The Company’s non-qualified deferred compensation and excess benefit retirement plan provides participants with benefits that are in excess of those amounts that can be provided within the qualified plans or that otherwise do not meet IRS requirements. Participant contributions to this plan are tax deferred until the time of distribution. The Company gives executives the benefit of this non-qualified plan because we believe that all eligible employees should receive proportionate contributions to their pension and retirement plans.

For compensation awarded for the 2017 performance year, non-qualified plan participants are eligible to receive Company pension contributions based on aggregate salary and bonus compensation of up to $2.0 million. From 2009 to 2017, this limit was $1.5 million. The increase for the 2017 performance year reflected the Committee’s interest in better aligning the cap with current compensation levels of the senior management team which have evolved over the last eight years.

Change In Control, Termination and Retirement Arrangements. In 2006, the Committee adopted a Key Employee Employment Protection Plan (the “KEEP Plan”), the purpose of which is to assure the Company of the services of key executives during a change in ownership or control of the Company, and to provide these executives with financial assurances so they can focus on their responsibilities without distraction and can exercise their judgment without bias due to personal circumstances. Mr. Fallon is covered under the KEEP Plan. The Company does not intend to cover any other executives under the KEEP Plan in the future.

In addition to the KEEP Plan, the Company’s compensation and benefit plans provide certain compensation payments and benefits due to retirement and under various other termination events, which are described under “Executive compensation tables – Potential payments upon termination or change in control as of December 31, 2017.”

Severance Arrangements for Mr. Wertheim. As described in the Form 10-K filed by MBIA on March 1, 2017 and in the notes associated with the terminations tables on page 46, MBIA entered into a Separation Agreement with Mr. Wertheim. The material terms of the agreement were as follows:

 

 

A one-time payment of $750,000, subject to the execution of an acceptable general release;

 

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A payment of $250,000 in exchange for his agreement to forfeit the outstanding performance-based restricted stock awarded to him in December 2012;

 

 

A payment of $750,000 attributable to the long-term incentive award with respect to the 2017 performance year;

 

 

A payment of $60,000 in lieu of a contribution that would have been made to his non-qualified retirement account with respect to his 2017 bonus; and

 

 

A payment of $10,000 to cover the cost of financial planning and/or outplacement services.

In addition, the Separation Agreement contains covenants regarding non-competition, non-solicitation and non-disparagement covenants.

Additional Information

Tax and Accounting Considerations

Our plans have generally been designed so that amounts paid under the plans are deductible for Federal income tax purposes, despite the limits imposed under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), including by qualifying the compensation payable under such plans as “performance-based compensation” within the meaning of Section 162(m) of the Code or by paying compensation that does not materially exceed the $1 million annual cap imposed by Section 162(m) of the Code. Although we believe that tax deductibility is an important factor in making compensation decisions, we reserve the right to pay amounts that are not deductible in specific circumstances. Where relevant, we have also designed our plans and programs to comply with, or to be exempt from the application of, Section 409A of the Code.

The Committee has considered the impact of the tax reform changes on our compensation programs, and will continue to do so during the course of 2018, as part of its annual review of compensation effectiveness.

CEO Pay Ratio

As is permitted under the SEC rules, to determine our median employee we used 2017 total cash compensation as our consistently applied compensation measure, which we calculated as the sum of salary paid in 2017 and cash incentive bonus paid for 2017 performance. Excluding our CEO, we examined a total of 102 employees as of the determination date of December 31, 2017 whether employed on a full-time or part-time basis.

We believe the use of total cash compensation for all employees is a consistently applied compensation measure. After identifying the median employee based on total cash compensation, we calculated annual total compensation for such employee using the same methodology we use for our named executive officers as set forth in the 2017 Summary Compensation Table in this proxy statement.

The annual total compensation for our CEO in 2017 was $3,092,146 and the annual total compensation for our median employee in 2017 was $222,050. Our CEO to median employee pay ratio is 14:1.

 

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Compensation and Governance Committee report

The Compensation and Governance Committee has reviewed the Compensation discussion and analysis (“CD&A”) set forth above and has discussed the disclosures contained therein with key members of the Company’s management team including the Chief Executive Officer. Based on our knowledge of the Company’s compensation program, we believe that the CD&A fairly and accurately discloses the practices, policies and objectives of the Company with respect to executive compensation for the year 2017. Based upon this review and discussion, we have recommended to the Company’s Board of Directors that the CD&A as presented to us be included in this proxy statement and in the Company’s Form 10-K filing with the Securities and Exchange Commission.

Date: February 23, 2018

The Compensation and Governance Committee

Mr. Steven J. Gilbert, Chair

Mr. Francis Y. Chin

Mr. Steven J. Gilbert

Mr. Theodore Shasta

Mr. Charles R. Rinehart

 

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Table of Contents

Executive compensation tables

MBIA Inc.

Summary compensation table for 2017

 

Name &

principal position (a)

  Year
(b)
    Salary
($) (c)
    Bonus
($) (d)
    Stock
awards
($) (e) (4)
    Option
awards
($) (f)
    Non
equity
incentive 
plan
compen-
sation
($) (g) (5)
   

Change in
pension
value and
non-qualified
deferred
compen-

sation
earnings
($) (h) (6)

   

All

other
compen-
sation
($) (i) (7)

   

Total
compen-
sation

($) (j)

 
Joseph W. Brown (1)     2017       1,000,000       -       -       -       1,170,000       -       527,828       2,697,828  
Former Chief Executive Officer     2016       1,000,000       -       -       -       2,100,000       -       482,828       3,582,828  
    2015       1,000,000       -       -       -       1,200,000       -       492,578       2,692,578  
         
William C. Fallon (1)     2017       847,163       -       1,237,500       -       770,250       -       237,233       3,092,146  
Chief Executive Officer     2016       812,500       -       750,000       -       1,072,500       -       216,875       2,851,875  
    2015       750,000       -       -       -       600,000       -       223,125       1,573,125  
         
Anthony McKiernan     2017       500,000       -       750,000       -       468,000       -       147,500       1,865,500  
Chief Financial Officer     2016       500,000       -       600,000       -       650,000       -       142,500       1,892,500  
    2015       500,000       -       -       -       400,000       -       198,750       1,098,750  
         
Jonathan C. Harris (2)     2017       320,833       -       400,000       -       273,000       -       75,737       1,069,570  
General Counsel and Secretary                          
         
Adam T. Bergonzi (3)     2017       390,000       -       122,400       -       312,000       -       122,800       947,200  

AVP and National’s Chief Risk Officer

                         
         
Daniel M. Avitabile (3)     2017       317,500       -       125,000       -       273,000       -       89,242       804,742  

AVP and MBIA Insurance’s President and Chief Risk Officer

                         
         
Christopher H. Young (3)     2017       318,833       -       97,920       -       273,000       -       100,017       789,770  

AVP and National’s Chief Financial Officer

                         
         
Ram D. Wertheim (2)     2017       500,000       -       750,000       -       468,000       -       1,967,500       3,685,500  
Former Chief Legal Officer     2016       500,000       -       500,000       -       650,000       -       142,500       1,792,500  
and Secretary     2015       500,000       -       -       -       400,000       -       198,750       1,098,750  

 

1 The Company’s previous CEO, Mr. Brown, stepped down as CEO effective September 15, 2017. The Company’s Board of Directors elected Mr. Fallon to the position of CEO of MBIA Inc., effective September 15, 2017.

 

2 Mr. Harris was appointed the Company’s General Counsel and Secretary effective March 2, 2017 and appointed executive officer of the Company effective September 15, 2017. Mr. Wertheim stepped down as Chief Legal Officer and Secretary on March 2, 2017 and separated from the Company on January 1, 2018.

 

3 Messrs. Bergonzi, Avitabile and Young were appointed executive officers of the Company effective September 15, 2017.

 

4 The amounts shown represent the grant date value of restricted shares granted on March 6, 2017. The values shown are in accordance with Financial Accounting Standards Board (“FASB”) Topic Accounting Standards Codification (“ASC”) 718. For a description of the stock valuation, see Note 16 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. See the CD&A and the “Grants of plan-based awards in 2017” table for award details.

 

5 The amounts shown represent cash performance bonuses paid for the 2017 performance year. See the CD&A for an explanation of the 2017 bonus awards.

 

6 MBIA does not maintain a qualified or non-qualified defined benefit retirement plan. The Company does maintain a non-qualified defined contribution retirement plan. MBIA contributes amounts to this plan that it is precluded from contributing to the money-purchase pension and 401(k) plans because of Internal Revenue Code limitations. Assets under this plan are participant-directed and employee account balances and contributions are subject to market-based returns.

 

7 All other compensation for each NEO includes the following (see table below). Except for the life insurance premium paid for Mr. Brown, there were no other perquisites paid on behalf of the NEOs in 2017. Mr. Wertheim’s severance payments are described in the CD&A.

 

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Table of Contents
           
Name   

Company
contributions
made to the
pension and
401k
retirement
plans in

2017 ($)

    

Company
contributions
made to the

non-qualified
retirement
plan in

2017 ($)

    

CEO term life
insurance
premium

paid in

2017 ($)

    

Severance

payments
earned in
2017 and
paid in
2018 ($)

     All other
compensation
($)
 

Joseph W. Brown

     35,250        269,750        222,828        -        527,828  

William C. Fallon

     37,625        199,608        -        -        237,233  

Anthony McKiernan

     32,000        115,500        -        -        147,500  

Jonathan C. Harris

     34,912        40,825        -        -        75,737  

Adam T. Bergonzi

     40,000        82,800        -        -        122,800  

Dan M. Avitabile

     35,250        53,992        -        -        89,242  

Christopher H. Young

     35,250        64,767        -        -        100,017  

Ram D. Wertheim

     35,250        112,250        -        1,820,000        1,967,500  

 

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Table of Contents

MBIA Inc.

Grants of plan-based awards in 2017

 

Name (a)   Grant
date (b)
    Estimated future
payouts under
non-equity incentive
plan awards
    Estimated future
payouts
under equity
incentive plan awards
    All
other
stock
awards:
number
of
shares/
units
(#) (i) (4)
   

All other
option
awards:
number of
securities
underlying
options

(#) (j)

    Exercise
or base
price
of
option
awards
($/
share)
(k)
   

Grant
date

fair

value

of

stock

and
option
awards

($) (l) (5)

 
    Thresh-
old
($) (c)
    Target
($) (d) (1)
    Maximum
($) (e) (2)
    Thresh-
old
(#) (f) (3)
    Target
(#) (g) (3)
    Maximum
(#) (h) (3)
         

Joseph W. Brown

    -       0       1,500,000       3,000,000       -       -       -       -       -       -       -  

William C. Fallon

    -       0       987,500       1,975,000       -       -       -       -       -       -       -  
    Mar 6, 2017       -       -       -       -       86,926       173,852       -       -       -       825,000  
      Mar 6, 2017       -       -       -       -       -       -       43,058       -       -       412,500  

Anthony McKiernan

    -       0       600,000       1,200,000       -       -       -       -       -       -       -  
    Mar 6, 2017       -       -       -       -       52,681       105,362       -       -       -       500,000  
      Mar 6, 2017       -       -       -       -       -       -       26,096       -       -       250,000  

Jonathan C. Harris

    -       0       350,000       700,000       -       -       -       -       -       -       -  
      Mar 6, 2017       -       -       -       -       -       -       41,754       -       -       400,000  

Adam T. Bergonzi

    -       0       400,000       800,000       -       -       -       -       -       -       -  
      Mar 6, 2017       -       -       -       -       -       -       12,777       -       -       122,400  

Daniel M. Avitabile

    -       0       350,000       700,000       -       -       -       -       -       -       -  
      Mar 6, 2017       -       -       -       -       -       -       13,048       -       -       125,000  

Christopher H. Young

    -       0       350,000       700,000       -       -       -       -       -       -       -  
      Mar 6, 2017       -       -       -       -       -       -       10,221       -       -       97,920  

Ram D. Wertheim

    -       0       600,000       1,200,000       -       -       -       -       -       -       -  
    Mar 6, 2017       -       -       -       -       52,681       105,362       -       -       -       500,000  
      Mar 6, 2017       -       -       -       -       -       -       26,096       -       -       250,000  

 

1 The amounts shown represent the 2017 cash performance bonus target opportunity for each of the NEOs, and do not reflect the actual payment of any bonus to the NEOs for 2017. The actual bonuses paid for 2017 are reflected in the “Summary compensation table for 2017” under column (g).

 

2 The amounts shown represent 2017 cash performance bonus maximum opportunity for each of the NEOs as determined by the achievement of Company objectives set forth at the beginning of the year and individual performance. The maximum bonus opportunity represents 200% of target.

 

3 On March 6, 2017, the Board approved restricted stock awards under the MBIA Inc. 2005 Omnibus Incentive Plan comprised of a combination of time- and performance-based restricted shares for Messrs. Fallon, McKiernan and Wertheim. The aggregate target value of the stock award was 150% of base salary in 2017, with one-third in the form of time-based restricted stock (described in footnote 4 below) and two-thirds of the award being in the form of performance-based restricted stock (described below).

The performance-based shares were granted with a grant date target value equal to 100% of the NEO’s respective base salary. The target performance score is 100% with the percentage of performance-based shares that can be earned between 0% and 200%. The overall performance score will be based on the achievement of the following three equally weighted performance measures over the three-year performance period starting on December 31, 2016 and ending on December 31, 2019: the Company’s: ABV, the Company’s Leverage and stock price if the Company pays no dividends during the performance period or TSR if dividends are paid during the performance period. Stock price will be measured as the average closing price of the Company’s stock for the preceding 60 trading days ending on December 31, 2019. The number of performance-based shares earned will be equal to the number of performance-based shares granted times the overall performance score. Earned shares will vest in equal installments on the third, fourth and fifth anniversary of the grant date, subject to the NEO’s continued employment on the vesting date (subject to certain exceptions). Performance-based shares not earned will be forfeited. See the CD&A for a table showing for each of the performance measures values relative to percentage scores ranging from 0%-200% and a description of each measure.

 

4 On March 6, 2017, each of the NEOs received time-based shares that will vest in equal installments on the third, fourth and fifth anniversary of the grant date, subject to the NEO’s continued employment on the vesting date (subject to certain exceptions). The time-based shares awarded to Messrs. Fallon, McKiernan and Wertheim were part of the aggregate stock award described in footnote 3 above with a value as of the grant date equal to 50% of the NEOs respective base salary in 2017.

 

5 The amounts shown represent the grant date value of restricted shares granted on March 6, 2017. The values shown are in accordance with Financial Accounting Standards Board (“FASB”) Topic Accounting Standards Codification (“ASC”) 718. For a description of the stock valuation, see Note 16 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

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Table of Contents

MBIA Inc.

Outstanding equity awards as of December 31, 2017

 

     
    Option awards     Stock awards  
Name (a)   Number of
securities
underlying
unexercised
options
exercisable
(#) (b)
    Number of
securities
underlying
unexercised
options
unexercisable
(#) (c)
   

Equity
incentive
plan
awards:
number of
securities
underlying
unexercised
unearned
options

(#) (d)

   

Option
exercise
price

($) (e)

    Option
expiration
date (f)
    Number
of shares
or units
of stock
that have
not
vested
(#) (g)
    Market
value of
shares or
units of
stock that
have not
vested
($) (h) (1)
   

Equity
incentive
plan awards:
number of
unearned

shares,

units or
other rights
that have
not vested
(#) (i)

    Equity
incentive
plan awards:
market or
payout value
of unearned
shares, units
or other
rights that
have not
vested ($) (j)
 

Joseph W. Brown

    -       -       -       -       -       -       -       750,000(2)       0  

William C. Fallon

    -       -       -       -       -       88,863(3)       650,477       -       -  
    -       -       -       -       -       43,058(4)       315,185       -       -  
      -       -       -       -       -       -       -       86,926(5)       0  

Anthony McKiernan

    -       -       -       -       -       71,091(3)       520,386       -       -  
    -       -       -       -       -       26,096(4)       191,023       -       -  
      -       -       -       -       -       -       -       52,681(5)       0  

Jonathan C. Harris

    -       -       -       -       -       2,263(6)       16,565       -       -  
    -       -       -       -       -       4,355(7)       31,879       -       -  
    -       -       -       -       -       10,451(8)       76,501       -       -  
    -       -       -       -       -       14,811(3)       108,417       -       -  
      -       -       -       -       -       41,754(9)       305,639       -       -  

Adam T. Bergonzi

    -       -       -       -       -       3,193(6)       23,373       -       -  
    -       -       -       -       -       5,444(7)       39,850       -       -  
    -       -       -       -       -       13,063(8)       95,621       -       -  
    -       -       -       -       -       20,427(3)       149,526       -       -  
      -       -       -       -       -       12,777(9)       93,528       -       -  

Daniel M. Avitabile

    -       -       -       -       -       1,969(6)       14,413       -       -  
    -       -       -       -       -       3,860(7)       28,255       -       -  
    -       -       -       -       -       9,263(8)       67,805       -       -  
    -       -       -       -       -       14,811(3)       108,417       -       -  
      -       -       -       -       -       13,048(9)       95,511       -       -  

Christopher H. Young

    -       -       -       -       -       2,263(6)       16,565       -       -  
    -       -       -       -       -       4,355(7)       31,879       -       -  
    -       -       -       -       -       10,451(8)       76,501       -       -  
    -       -       -       -       -       11,602(3)       84,927       -       -  
      -       -       -       -       -       10,221(9)       74,818       -       -  

Ram D. Wertheim

    -       -       -       -       -       59,242(3)       433,651       -       -  
    -       -       -       -       -       26,096(4)       191,023       -       -  
      -       -       -       -       -       -       -       52,681(5)       0  

 

1 The amounts shown represent time-based restricted stock and are equal to the number of shares awarded multiplied by $7.32 per share, the closing market value of the shares on December 31, 2017.

 

2 The performance-based restricted stock shown represents the remaining 25% of the restricted stock awarded to Mr. Brown on March 17, 2014. While the table above reflects 750,000 shares outstanding as of December 31, 2017, Mr. Brown forfeited the full 750,000 performance-based shares on January 2, 2018. The grant provided for the forfeiture of such performance-based restricted stock if the Company’s average closing share price over 60 trading days prior to the January 2 vesting date did not exceed the performance threshold of $10.00. Since the average closing share price over such period was $7.74, the shares were forfeited.

 

3 The time-based restricted stock shown was granted on March 3, 2016 and will vest in equal installments on each of the third, fourth and fifth anniversary of the date of grant; and such shares are subject to continued employment (subject to certain exceptions).

 

4 On March 6, 2017, the Board approved restricted stock awards under the MBIA Inc. 2005 Omnibus Incentive Plan comprised of a combination of time- and performance-based restricted shares with one-third in the form of time-based restricted stock (described below) and two-thirds of the award being in the form of performance-based restricted stock (described in footnote 5 below). The time-based shares shown will vest in equal installments on each of the third, fourth and fifth anniversary of the grant date, subject to the NEO’s continued employment on the vesting date (subject to certain exceptions).

 

5

In connection with the March 6, 2017 restricted stock awards described above, the target performance-based restricted stock shown represents two-thirds of the aggregate award described in footnote 4 above. The target performance score is 100% with the percentage of performance-based shares that can be earned between 0% and 200%. The overall performance score will be based on the achievement of the following three equally weighted performance measures over the three-year performance period starting on December 31, 2016 and ending on December 31, 2019: the

 

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  Company’s ABV, the Company’s Leverage and stock price if the Company pays no dividends during the performance period or TSR if dividends are paid during the performance period. Stock price will be measured as the average closing price of the Company’s stock for the preceding 60 trading days ending on December 31, 2019. The number of performance-based shares earned will be equal to the number of performance-based shares granted times the overall performance score. Earned shares will vest in equal installments on the third, fourth and fifth anniversary of the grant date, subject to the NEO’s continued employment on the vesting date (subject to certain exceptions). Performance-based shares not earned will be forfeited. See the CD&A for a table showing each of the performance measures’ values relative to percentage scores ranging from 0%-200% and a description of each measure.

 

   The market value for these shares shown under column (j) reflects no value because threshold performance for each of the three measures was not achieved as of December 31, 2017.

 

6 The time-based restricted stock shown was granted on March 4, 2013 and will vest on the fifth anniversary of the date of grant; and such shares are subject to continued employment (subject to certain exceptions).

 

7 The time-based restricted stock shown was granted on March 6, 2014 and will vest in equal installments on the fourth and fifth anniversary of the date of grant; and such shares are subject to continued employment (subject to certain exceptions).

 

8 The time-based restricted stock shown was granted on March 5, 2015 and will vest in equal installments on the third, fourth and fifth anniversary of the date of grant; and such shares are subject to continued employment (subject to certain exceptions).

 

9 The time-based restricted stock shown was granted on March 6, 2017 and will vest in equal installments on the third, fourth and fifth anniversary of the date of grant; and such shares are subject to continued employment (subject to certain exceptions).

 

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MBIA Inc.

Option exercises and stock vested in 2017

 

     
     Option awards      Stock awards  
Name (a)   

Number of
shares acquired
on exercise

(#) (b)

     Value
realized on
exercise
($) (c)
    

Number of
shares acquired
on vesting

(#) (d)

    

Value
realized on
vesting

($) (e) (1)

 

Joseph W. Brown

     -        -        -        -  

William C. Fallon

     -        -        -        -  

Anthony McKiernan

     -        -        97,752        973,610  

Jonathan C. Harris

     -        -        12,926        127,485  

Adam T. Bergonzi

     -        -        17,879        176,434  

Daniel M. Avitabile

     -        -        8,788        86,420  

Christopher H. Young

     -        -        12,926        127,485  

Ram D. Wertheim

     -        -        -        -  

 

1 The value realized upon vesting is equal to the number of shares vested multiplied by the per share market closing price on the date of vesting. The values do not include the payment of taxes by the NEOs.

MBIA Inc.

Non-qualified deferred compensation in 2017

 

           
Name (a)  

Executive
contributions
in 2017

($) (b) (1)

   

Company
contributions
in 2017

($) (c) (1)

   

Earnings

(Losses)
in 2017
($) (d) (2)

   

Withdrawals/
distributions

in 2017

($) (e) (3)

   

Balance as of
12/31/17

($) (f)

 

Joseph W. Brown

    137,000       269,750       -846,218       488,265       2,756,937  

William C. Fallon

    173,966       199,608       -644,509       -       3,695,353  

Anthony McKiernan

    179,500       115,500       34,890       -       2,591,602  

Jonathan C. Harris

    0       40,825       18,959       -       268,396  

Adam T. Bergonzi

    33,120       82,800       120,086       -       791,932  

Daniel M. Avitabile

    13,825       53,992       2,338       -       370,899  

Christopher H. Young

    41,168       64,767       242,370       -       1,054,102  

Ram D. Wertheim

    39,500       112,250       58,084       -       1,509,360  

 

1 MBIA maintains a non-qualified defined contribution retirement plan. Under this plan, MBIA contributes amounts that it is precluded from contributing to the money-purchase pension and 401(k) plans because of Internal Revenue Code limitations. The amounts contributed include both Company and NEO contributions. For compensation awarded for the 2017 performance year, non-qualified plan participants are eligible to receive Company pension contributions based on aggregate salary and bonus compensation of up to $2.0 million. For the 2016 performance year this limit was $1.5 million. The Company contributions shown in the table above include Company pension contributions made in 2017 for the 2016 performance year. NEOs become fully vested in Company contributions on the fifth year of participation in the plan. The NEO contribution amounts are included in the salary and performance bonus as reported in the “Summary compensation table for 2017” under columns (c) and (g) respectively. The Company contribution amounts are included in all other compensation as reported in the “Summary compensation table for 2017” under column (i).

 

2 Assets under this plan are participant-directed and employee account balances and contributions are subject to market-based returns. Plan participants may self-direct their investments among multiple investment options that generally mirror the 401(k) plan, including the MBIA Inc. Common Stock Fund. The earnings (losses) shown represent the change in market value in 2017, including any dividends and interest earned, which was reduced by any transaction fees incurred during the year.

 

3 Distributions may occur following termination of employment in accordance with the requirements of Section 409A of the Internal Revenue Code. Such distributions may be received as a lump sum payment or in annual installments up to 10 years. For Mr. Brown, in connection with his retirement in 2007, the amount shown represents the tenth and final installment distribution on amounts deferred prior to his retirement.

 

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Potential payments upon termination or change in control as of December 31, 2017

The Company’s compensation and benefit plans provide certain compensation payments and benefits under various termination events. The following summaries describe potential compensation and benefits payable to the NEOs upon termination of employment under the following events: (a) involuntary (not for cause) or constructive termination following a change in control, (b) retirement (if eligible), (c) voluntary termination, (d) involuntary (not for cause) termination without a change in control and (e) death or disability.

In general, employees participating in the compensation and benefit plans are treated similarly with respect to the various termination scenarios. Differences may apply where NEOs are covered under individual agreements as described below. Following the narrative are tables with estimated dollar values associated with these payments and benefits for each NEO.

(a) Involuntary (not for cause) or constructive termination following a change in control. On November 8, 2006, the Company adopted the Key Employee Employment Protection Plan (the “KEEP Plan”), which superseded any existing employment protection agreements. Its purpose is to assure the Company of the services of key executives during a change in control of the Company, and to provide these executives with financial assurances so they can focus on their responsibilities without distraction and can exercise their judgment without bias due to personal circumstances. The KEEP Plan covers Mr. Fallon as of December 31, 2017. The Company does not intend to cover any other executives under the KEEP Plan in the future.

On February 27, 2007, the Company adopted an amendment to the KEEP Plan. A copy of the amended KEEP Plan and a form of an individual agreement has been filed as Exhibit 10.80 and Exhibit 10.81, respectively, to the Company’s Form 10-K filed on March 1, 2007. The Company adopted another amendment on February 22, 2010 to the KEEP Plan. A copy of this amendment has been filed as Exhibit 10.13 to the Form 10-K filed on March 1, 2010.

The KEEP Plan provides that the Company will continue to employ Mr. Fallon for a period of 24 months from the effective date of the change in control; and his position, title, authority and responsibilities as well as salary, bonus and other elements of compensation and benefits are to be maintained at levels equal to or commensurate with levels existing prior to the change in control. Compensation payable and benefits under the KEEP Plan are triggered by a change in control of the Company followed by an involuntary termination by the Company (not for cause) or a voluntary termination for good cause (constructive termination). These terminations are each referred to as a “qualifying termination.”

In the event of a qualifying termination during the 24-month effective period, Mr. Fallon will receive a lump sum severance payment equal to two times the sum of his annual base salary and the average of the annual bonuses paid to him for the prior two years. The severance payment will also include a pro-rated annual bonus for the year of termination equal to the average of the annual bonuses paid for the prior two years.

The KEEP Plan provides that in the event of a qualifying termination, time-based restricted stock will become fully vested and the vesting of performance shares shall be administered in accordance with the terms of the applicable award agreement.

Under the KEEP Plan, Mr. Fallon will also receive continued health and group life insurance coverage for a period of 24 months following the date of the qualifying termination and a credit to the Company’s non-qualified retirement plan in an amount equal to the amount that otherwise would have been contributed on his behalf under the Company’s money-purchase pension plan had his employment continued for another 24 months. In addition, all unvested retirement account balances will become fully vested.

To the extent that any payments are subject to an excise tax, a tax gross-up payment may be made to Mr. Fallon, subject to the conditions described below. To the extent a tax gross-up payment is required to be made under the KEEP Plan, such payment will be made only if the total payments exceed the IRS excise tax safe harbor limit by at least 10%. If such total payments are less than 10% over the safe harbor limit, KEEP Plan payments to Mr. Fallon will be reduced to the extent necessary to eliminate any excise tax. With respect to Mr. Fallon, in the event of a qualifying termination as of December 31, 2017, the KEEP Plan payments would not require an excise tax gross-up. As a condition to the receipt of benefits, the KEEP Plan requires that Mr. Fallon agree to be bound by a non-competition and non-solicitation clause and a non-disparagement clause. A violation of any of these clauses will result in a loss of future severance benefits and possible forfeiture to the Company of any severance already paid.

 

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(b) Retirement. On November 8, 2006, the Company adopted voluntary retirement benefits which provide certain benefits to the Company’s employees (including NEOs) upon retirement (the “Retirement Program”). Mr. Brown was not eligible to participate. To be eligible for the retirement benefits as described below an NEO must (i) be at least 55 years old, (ii) have at least five years of service and (iii) give at least a six-month advance notice of retirement. The Compensation Committee may waive any of the eligibility conditions or amend any of the provisions of the Retirement Program. Changes have been made to the Retirement Program’s terms since its inception. In 2017, the Company made changes to the treatment of year-end performance bonus and healthcare benefits to remain current with Company policies and practices. Following is a summary of the current compensation and benefits under the Company’s Retirement Program.

Annual performance bonus. The performance bonus will be determined based on the NEOs target bonus and adjusted for company and individual performance, and subject to management discretion.

Unvested Restricted stock. Time-based restricted stock will immediately vest at the retirement date unless otherwise specified in the underlying stock agreement. Performance-based restricted stock will continue to vest beyond the retirement date in accordance with the original vesting terms and to the extent that the “performance score” criteria are satisfied.

Long-term incentive award. The Company will provide a cash payment in consideration of the LTI award that otherwise would have been granted to the NEO in the current or subsequent year, with such payment prorated based on the number of months of service in the year of retirement and subject to management discretion.

Restrictive covenants. The vesting of LTI and cash payment in consideration of LTI will require the NEO to consent to a non-solicitation and non-disparagement provision; and at management’s discretion, a non-compete restriction.

Health care benefits. The NEOs can continue medical and dental benefits under the Company’s health care program until age 65 and in some cases after age 65 with the NEO assuming the full premium costs. However, new employees, including NEOs hired after October 10, 2017 may continue health care benefits only until age 65 at which time benefits will cease.

Retirement plans. Vested account balances under the 401(k), money-purchase pension and non-qualified plans remain available and unvested balances are forfeited.

Accrued and unused vacation. Accrued and unused vacation time as of the retirement date will be paid at retirement.

(c) Voluntary termination. Upon the voluntary termination or resignation of an NEO, there are no cash payment obligations and unvested time- and performance-based restricted stock is forfeited. Vested account balances under the 401(k), money-purchase pension and non-qualified plans remain available and unvested balances are forfeited.

(d) Involuntary (not for cause) termination without change in control. Upon an involuntary termination not for cause there are no cash payment obligations. Any cash payment will be paid at the discretion of the Board. With respect to the March 2017 restricted stock award granted to Messrs. Fallon and McKiernan, there is immediate vesting of time-based restricted stock and performance-based restricted stock will continue to vest beyond the termination date in accordance with the original vesting terms and to the extent that the “performance score” criteria are satisfied. For all other time-based restricted stock, vesting treatment is at the discretion of the Board and represented as forfeited in the termination tables. Vested account balances under the 401(k), money-purchase pension and non-qualified plans remain available and unvested balances are forfeited.

(e) Death or total disability. Upon the death or total disability of an NEO, there are no cash payment obligations. There is immediate vesting of time-based restricted stock and performance-based shares will vest to the extent that the “performance score” criteria are satisfied. All unvested retirement account balances will become fully vested. In connection with Mr. Brown’s $25 million life insurance policy, the death benefit becomes payable upon death.

 

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Tables showing potential post termination payments. The following tables show the estimated value of the compensation and benefits that would become payable as a result of the different termination events described above for each of the NEOs, except for Mr. Wertheim. The values have been estimated as if the termination event occurred on December 31, 2017 and assumes the closing market value of the Company’s shares on that date which was $7.32. The market values of the performance-based restricted stock in the tables reflect no value because the threshold performance for each of the three measures was not achieved as of December 31, 2017. For Mr. Wertheim, actual payments in connection with his separation from the Company are described after the tables.

Following are notes to explain some of the values shown in the tables below.

 

(1) Under “Termination following a change in control”, compensation and benefit values reflect the provisions as described under the KEEP Plan for Mr. Fallon. For the other NEOs, their compensation values reflect the terms of their respective stock awards. In addition, the values for performance-based and time-based restricted stock reflect the amount the NEO would have been entitled to receive in respect of such equity awards had a change in control occurred on December 31, 2017, whether or not the executive experienced a termination of employment on December 31, 2017.

 

(2) Under “Voluntary termination or retirement”, Mr. Fallon is retirement-eligible under the Company’s Retirement Program as of December 31, 2017 and the amounts shown reflect the compensation and benefits as described under “Retirement”. For the other NEOs the amounts reflect a voluntary termination.

 

(3) Under “Involuntary (not for cause) termination”, any cash severance and cash bonus will be paid at the discretion of the Board.

 

(4) Death or total disability amounts reflect the compensation and benefit treatments as described under “Death or total disability” above.

Joseph W. Brown

 

         

Payment or benefit upon

termination

   Termination
following a
change in
control ($) (1)
    

Voluntary
termination or
Retirement

($) (2)

     Involuntary
termination ($) (3)
     Death or total
disability payments
($) (4)
 

Cash Severance

     0        0        0        0  

Cash Bonus

     0        0        0        0  

Time-based Restricted Stock

     0        0        0        0  

Performance-based Restricted Stock

     0        0        0        0  

Retirement Benefits

     0        0        0        0  

Healthcare Benefits

     0        0        0        (5)  

Total

     0        0        0        0(5)  

 

(5) In 2013, the Company purchased a $25 million term life insurance policy for Mr. Brown. The Company agreed to pay the annual premiums for the policy so long as Mr. Brown is an employee of the Company. The annual premium will be treated as imputed income of Mr. Brown without any gross up.

William C. Fallon

 

         

Payment or benefit upon

termination

   Termination
following a
change in
control ($) (1)
    

Voluntary
termination or
Retirement

($) (2)

     Involuntary
termination ($) (3)
     Death or total
disability payments
($) (4)
 

Cash Severance

     3,472,500        0        0        0  

Cash Bonus

     836,250        770,250        0        0  

Time-based Restricted Stock

     965,662        965,662        315,185        965,662  

Performance-based Restricted Stock

     0        0        0        0  

Retirement Benefits

     383,933        0        0        0  

Healthcare Benefits

     51,439        0        0        0  

Total

     5,709,784        1,735,912        315,185        965,662  

 

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Anthony McKiernan

 

         

Payment or benefit upon

termination

   Termination
following a
change in
control ($) (1)
    

Voluntary
termination or
Retirement

($) (2)

     Involuntary
termination ($) (3)
     Death or total
disability payments
($) (4)
 

Cash Severance

     0        0        0        0  

Cash Bonus

     0        0        0        0  

Time-based Restricted Stock

     711,409        0        191,023        711,409  

Performance-based Restricted Stock

     0        0        0        0  

Retirement Benefits

     0        0        0        0  

Healthcare Benefits

     0        0        0        0  

Total

     711,409        0        191,023        711,409  

Jonathan C. Harris

 

         

Payment or benefit upon

termination

   Termination
following a
change in
control ($) (1)
    

Voluntary
termination or
Retirement

($) (2)

     Involuntary
termination ($) (3)
     Death or total
disability payments
($) (4)
 

Cash Severance

     0        0        0        0  

Cash Bonus

     0        0        0        0  

Time-based Restricted Stock

     539,001        0        0        539,001  

Performance-based Restricted Stock

     0        0        0        0  

Retirement Benefits

     0        0        0        0  

Healthcare Benefits

     0        0        0        0  

Total

     539,001        0        0        539,001  

Adam T. Bergonzi

 

         

Payment or benefit upon

termination

   Termination
following a
change in
control ($) (1)
    

Voluntary
termination or
Retirement

($) (2)

     Involuntary
termination ($) (3)
     Death or total
disability payments
($) (4)
 

Cash Severance

     0        0        0        0  

Cash Bonus

     0        0        0        0  

Time-based Restricted Stock

     401,897        0        0        401,897  

Performance-based Restricted Stock

     0        0        0        0  

Retirement Benefits

     0        0        0        0  

Healthcare Benefits

     0        0        0        0  

Total

     401,897        0        0        401,897  

Daniel M. Avitabile

 

         

Payment or benefit upon

termination

   Termination
following a
change in
control ($) (1)
    

Voluntary
termination or
Retirement

($) (2)

     Involuntary
termination ($) (3)
     Death or total
disability payments
($) (4)
 

Cash Severance

     0        0        0        0  

Cash Bonus

     0        0        0        0  

Time-based Restricted Stock

     314,401        0        0        314,401  

Performance-based Restricted Stock

     0        0        0        0  

Retirement Benefits

     0        0        0        0  

Healthcare Benefits

     0        0        0        0  

Total

     314,401        0        0        314,401  

 

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Christopher H. Young

 

         

Payment or benefit upon

termination

   Termination
following a
change in
control ($) (1)
    

Voluntary
termination or
Retirement

($) (2)

     Involuntary
termination ($) (3)
     Death or total
disability payments
($) (4)
 

Cash Severance

     0        0        0        0  

Cash Bonus

     0        0        0        0  

Time-based Restricted Stock

     284,689        0        0        284,689  

Performance-based Restricted Stock

     0        0        0        0  

Retirement Benefits

     0        0        0        0  

Healthcare Benefits

     0        0        0        0  

Total

     284,689        0        0        284,689  

Mr. Wertheim. As described in the Form 10-K filed by the Company on March 1, 2017, the Company entered into a Separation Agreement with Mr. Wertheim, the material terms of which are described below (the “Separation Agreement”). Under the Separation Agreement, Mr. Wertheim received, subject to the execution of an acceptable general release, a one-time severance payment of $750,000 (which is consistent with the Company’s severance practices for employees) following his last day of employment. In addition, in exchange for his agreement to forfeit the outstanding performance based restricted stock awarded to him as part of the cash retention and restricted stock award made to him on December 21, 2012 and to comply with the non-compete covenant that is part of the Separation Agreement, Mr. Wertheim received an additional payment of $250,000. For the 2017 performance year, Mr. Wertheim received, at such time as such payments are made to other employees of the Company, a cash performance bonus for the 2017 performance year, and, in lieu of the long term incentive (“LTI”) restricted stock award for the year, a cash payment at the target LTI amount of $750,000. In addition, in March of 2019, Mr. Wertheim will receive a payment of $60,000 in lieu of the contribution the Company would have made to Mr. Wertheim’s non-qualified deferred compensation retirement account in respect of the 2017 bonus that was paid to him in 2018. The Company also agreed to pay Mr. Wertheim $10,000 to cover the cost of financial planning and/or outplacement. The Separation Agreement contains certain customary covenants regarding non-competition with the Company’s financial guarantee business for a period of five years, confidentiality, a two year non-solicitation of Company employees and a non-disparagement covenant.

 

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Compensation plan risk assessment

Our Compensation Committee has assessed our compensation policies and practices to evaluate whether they create risks that are reasonably likely to have a material adverse effect on the Company. Based on its assessment, the Compensation Committee concluded that the Company’s compensation policies and practices do not create incentives to take risks that are reasonably likely to have a material adverse effect on the Company.

In its assessment, the Compensation Committee considered whether the performance measures used to measure and determine Company performance as well as the attributes of the Company’s compensation policies and practices mitigate incentives to take undue risks while providing adequate incentives to build long-term shareholder value. The Compensation Committee concluded that the Company has designed its performance evaluation scorecard, and allocated its employees’ compensation among base salary, short-term incentives and long-term equity, in such a way as to not encourage excessive risk-taking.

 

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Principal accountant fees and services

The Company paid PwC a total of approximately $3,796,000 and $4,211,000 respectively, for professional services rendered for the audit years ended December 31, 2017 and 2016, broken down as follows (in thousands):

 

        2017        2016  

Audit

     $ 3,663        $ 3,899  

Audit Related

     $ 108        $ 136  

Tax

     $ 25        $ 176  

Total

     $ 3,796        $ 4,211  

Audit fees were for professional services rendered in connection with the audits of the consolidated financial statements of the Company, statutory and subsidiary audits, consultations concerning financial accounting and reporting standards and assistance with the review of documents filed with the SEC.

Audit Related fees were for assurance and related services performed for the loss reserve certification and assistance with regulatory filings.

Tax fees were for professional services rendered in connection with general tax advice related to the sale of MBIA UK Insurance Ltd. and income tax consulting matters.

One hundred percent of all the above fees for the years ended December 31, 2017 and 2016 were approved by the Audit Committee.

PwC did not provide the Company with any information technology services relating to financial systems design or implementation for 2017 or 2016.

Pursuant to its charter, the Audit Committee has responsibility for the pre-approval of all audit and permitted non-audit services to be performed for the Company by the independent auditors. The Audit Committee has adopted a policy for the approval of non-audit related services. At the beginning of the year, the Audit Committee reviews and approves any proposed audit and non-audit related services for the year and the associated costs. The Audit Committee also reviews at its meetings other audit and non-audit services proposed to be provided by the independent auditors. The Audit Committee has delegated to the Chair the authority to grant pre-approvals, when less than $50,000, if the Chair deems it necessary or appropriate to consider a pre-approval request without a meeting of the full Committee. Pre-approvals by the Chair are reviewed with the Audit Committee at its next regularly scheduled meeting.

In considering the pre-approval of proposed audit or non-audit services by the independent auditors, management reviews with the Audit Committee a description of, and the budget for, the proposed service and the reasons that the independent auditors are being requested to provide the services, including any possible impact on the independence of the independent auditors. Additional Committee approval is required if the pre-approved services exceed the pre-approved budgeted amount for the services.

 

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Table of Contents

Security ownership of certain beneficial owners

The table below contains certain information about the only beneficial owners known to the Company as of March 8, 2018 of more than 5% of the outstanding shares of the Company’s common stock.

 

Name and address of beneficial owner   Shares of
common
stock
beneficially
owned
    Percent
(%) of
class