Rithm board takes a new tack on CEO's compensation

Rithm Capital's board has restructured the compensation package for its CEO, downsizing some of the contractual obligations and significantly upsizing the performance component.

The company's board voted to reduce Michael Nierenberg's base salary to $1 million from $1.25 million and cut his annual target cash bonus to $4 million from $5 million starting on April 1, according to a recent Securities and Exchange Commission filing. 

Nierenberg's time-based equity award also has been downsized to $3 million from nearly $4.38 million. But his performance-based equity award, which previously was nearly $4.38 million, is now $9 million.

With that change, "75% of the target value of the executive's annual equity grants will now be in the form of performance-based units," according to the filing.

He also has received a profit interests award for 276,243 units of derivative securities that can be converted into Rithm stock shares, according to a separate filing issued Tuesday. The units will vest on March 15 each of the next three years, starting in 2025. They will become exchangeable for common stock in line with certain requirements as they do.

Profitability at Rithm will likely be contingent on its ability to raise asset management income from the acquisition of Sculptor Capital later this year to offset likely rising costs in the more immediate future, according to a recent report by equity analysts at BTIG.

"We're looking for Sculptor to contribute a slight increase to EPS in the back half of this year, but near-term it will incur higher expenses," they said in a report published Monday.

Spinoffs of the Newrez mortgage origination and servicing components of the business could be used to add fee-paying assets under management, BTIG said in the report. BTIG also speculated earlier that the company could engage in a spinout.

"We especially think Newrez will be the vehicle servicing Rithm's objective to raise third-party capital for MSR funds," the analysts said in their more recent note.

The company's share price was trading near the top of its weekly range, just below $11 per share at midday on Wednesday, and up slightly on the day.

Rithm recently reported its first quarterly loss in over a year due to a servicing writedown due to lower fourth-quarter rates. It also has been working to improve its funding profile by issuing longer-term, unsecured debt to that end and paying down some of its other obligations.

In addition to investing in the previously contested acquisition of Sculptor, Rithm also has agreed to purchase Computershare Mortgage Services and certain affiliates, including Specialized Loan Servicing.

The Computershare deal is set to close in the first half of this year. The acquisition of Sculptor closed in the fourth quarter of last year.

Nierenberg has been Rithm's CEO since 2013. He previously was managing director and head of global mortgages and securitized products at Bank of America Merrill Lynch. Prior to that, he was head of global securitized products at JPMorgan Chase.

His time on Wall Street goes back to the days of the Great Recession when he had experience managing mortgage-related assets during an extreme boom-and-bust cycle for housing.