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 (Amendment No.     )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

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

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

PHH CORPORATION

(Name of Registrant as Specified In Its Charter)

 

N/A

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

 

Payment of Filing Fee (Check the appropriate box):

 

þ  No fee required.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 29, 2011

 

Dear Fellow Stockholder:

 

You are cordially invited to attend the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) of PHH Corporation (the “Company”), which will be held at our offices located at 3000 Leadenhall Road, Mt. Laurel, New Jersey 08054, on Wednesday, June 8, 2011, at 10:00 a.m., local time. At the Annual Meeting, stockholders will be asked to elect two Class III directors to hold office until the 2014 Annual Meeting of Stockholders, to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011, to vote upon an advisory resolution approving the compensation of our named executive officers as disclosed pursuant to Item 402 of Regulation S-K, to vote upon an advisory resolution concerning the frequency of advisory votes on the compensation of our named executive officers, and to consider and vote upon such other business as may properly come before the meeting. This Notice of 2011 Annual Meeting, Proxy Statement and 2010 Annual Report describes in more detail the business to be conducted at the Annual Meeting and provides other information concerning us of which you should be aware when you vote your shares.

 

YOUR VOTE IS EXTREMELY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.

 

In order to ensure that your shares are represented at the Annual Meeting, whether you plan to attend or not, please vote in accordance with the enclosed instructions. You can vote your shares by telephone, electronically via the Internet or by completing and returning the enclosed proxy card or vote instruction form. If you vote using the enclosed proxy card or vote instruction form, you must sign, date and mail the proxy card or vote instruction form in the enclosed envelope. If you decide to attend the Annual Meeting and wish to modify your vote, you may revoke your proxy and vote in person at the meeting.

 

Admission to the Annual Meeting will be by admission ticket only. If you are a stockholder of record and plan to attend the Annual Meeting, retain the top portion of your proxy card as your admission ticket and bring it and a photo ID with you so that you may gain admission to the meeting. If your shares are held through a bank, broker or other nominee, please contact your nominee and request that the nominee obtain an admission ticket for you or provide you with evidence of your share ownership, which will gain you admission to the Annual Meeting.

 

Pursuant to rules adopted by the U.S. Securities and Exchange Commission (the “SEC”), we are furnishing via the Internet our proxy statement and other proxy materials to stockholders holding less than 1,000 shares of our common stock as of the record date for the Annual Meeting. We believe this e-proxy process reduces the environmental impact of our Annual Meeting, reduces our printing and postage costs, and expedites the receipt of proxy materials by our stockholders.

 

The Board of Directors appreciates your time and attention in reviewing the accompanying Notice of 2011 Annual Meeting, Proxy Statement and 2010 Annual Report. Thank you for your continued interest in PHH Corporation. We look forward to seeing you at the meeting.

 

Sincerely,

 

 

Jerome J. Selitto
President and Chief Executive Officer

PHH CORPORATION
3000 Leadenhall Road
Mt. Laurel, New Jersey 08054

 

 

NOTICE OF 2011 ANNUAL MEETING

 

 

 

To Our Stockholders:

 

The 2011 Annual Meeting of Stockholders of PHH Corporation (the “Company”) will be held at our offices located at 3000 Leadenhall Road, Mt. Laurel, New Jersey 08054, on Wednesday, June 8, 2011, at 10:00 a.m., local time (the “Annual Meeting”), for the following purposes:

 

1. To elect two Class III directors, each to serve until the 2014 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified, or until their earlier death, retirement or resignation;

 

2. To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011;

 

3. To conduct an advisory vote concerning the compensation of our named executive officers;

 

4. To conduct an advisory vote concerning the frequency of advisory votes on the compensation of our named executive officers; and

 

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

 

The Board of Directors has fixed the close of business on March 23, 2011 as the record date for the Annual Meeting. Only stockholders of record as of the close of business on the record date are entitled to notice of, and to vote at, the Annual Meeting and any adjournment or postponement thereof.

 

By Order of the Board of Directors

 

 

William F. Brown

Senior Vice President, General Counsel and Secretary

 

April 29, 2011

 

 

 

 

PHH CORPORATION

3000 Leadenhall Road

Mt. Laurel, New Jersey 08054

 

 

PROXY STATEMENT FOR THE

2011 ANNUAL MEETING OF STOCKHOLDERS

 

 

This Proxy Statement is being furnished to the holders of common stock, par value $0.01 per share, of PHH Corporation, a Maryland corporation (the “Company”), in connection with the solicitation by our Board of Directors of proxies to be voted at the 2011 Annual Meeting of Stockholders of the Company (the “Annual Meeting”) to be held at our offices located at 3000 Leadenhall Road, Mt. Laurel, New Jersey, on Wednesday, June 8, 2011, at 10:00 a.m., local time, or at any postponement or adjournment of the Annual Meeting, for the purposes set forth in the accompanying Notice of 2011 Annual Meeting.

 

This Proxy Statement and the other proxy materials are being mailed to stockholders and are first being made available via the Internet on or about April 29, 2011. If a stockholder executes and returns the enclosed proxy card or vote instruction form or submits vote instructions to us by telephone or via the Internet, the stockholder may nevertheless revoke their proxy at any time prior to its use by filing with the Secretary of the Company a written revocation or a duly executed proxy bearing a later date or by submitting revised vote instructions to us by telephone or via the Internet prior to 11:59 p.m. EDT on Tuesday, June 7, 2011, in accordance with the instructions on the enclosed proxy card or vote instruction form. A stockholder who attends the Annual Meeting in person may revoke his or her proxy at that time and vote in person if so desired.

 

Admission to the Annual Meeting will be by admission ticket only. If you are a stockholder of record and plan to attend the Annual Meeting, retain the top portion of your proxy card as your admission ticket and bring it and a photo ID with you so that you may gain admission to the meeting. If your shares are held through a bank, broker or other nominee, please contact your nominee and request that the nominee obtain an admission ticket for you or provide you with evidence of your share ownership, which will gain you admission to the Annual Meeting.

 

Unless revoked or unless contrary instructions are given, each proxy that is properly signed, dated and returned or authorized by telephone or via the Internet in accordance with the instructions on the enclosed proxy card or vote instruction form prior to the start of the Annual Meeting will be voted as indicated on the proxy card or via telephone or the Internet and if no indication is made, each such proxy will be deemed to grant authority to vote, as applicable:

 

(1) Proposal 1: FOR the election of each of Mr. James W. Brinkley and Mr. Jerome J. Selitto as Class III directors, each to serve until the 2014 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified, or until their earlier death, retirement or resignation (the “Director Election Proposal”);

 

(2) Proposal 2: FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011 (the “Ratification of Auditors Proposal”);

 

(3) Proposal 3: FOR the advisory resolution approving compensation of our named executive officers as disclosed pursuant to Item 402 of Regulation S-K (the “Say on Pay Vote”);

 

(4) Proposal 4: for an ANNUAL advisory vote on the compensation of our named executive officers (the “Say When on Pay Vote”); and

 

(5) At the discretion of the persons named in the enclosed proxy card or vote instruction form, on any other matter that may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.

 

OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES LISTED UNDER THE DIRECTOR ELECTION PROPOSAL, “FOR” THE RATIFICATION OF AUDITORS PROPOSAL, “FOR” THE SAY ON PAY VOTE AND FOR AN “ANNUAL” SAY WHEN ON PAY VOTE.

 

TABLE OF CONTENTS

 

 

Why am I receiving these proxy materials?

 

You are receiving these proxy materials because our Board of Directors (the “Board”) is soliciting your proxy to cast your vote at the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) of PHH Corporation, a Maryland corporation (“we,” “our,” “us,” “PHH” or the “Company”), and any adjournment or postponement of the Annual Meeting. This Proxy Statement, the accompanying Notice of 2011 Annual Meeting, our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 28, 2011 (the “2010 Annual Report”), and the enclosed proxy card or vote instruction form for those stockholders that have been sent printed copies of our proxy materials are being mailed to stockholders or are first being made available to stockholders via the Internet on or about April 29, 2011.

 

When and where is the Annual Meeting going to be held?

 

The Annual Meeting will be held at our offices located at 3000 Leadenhall Road, Mt. Laurel, New Jersey, on Wednesday, June 8, 2011, at 10:00 a.m., local time. Registration and seating will begin at 9:00 a.m., local time.

 

What is the purpose of the Annual Meeting?

 

At the Annual Meeting, stockholders will vote on the matters described in the accompanying Notice of 2011 Annual Meeting and this Proxy Statement. The only matters expected to be voted upon at the Annual Meeting are (1) the Director Election Proposal, (2) the Ratification of Auditors Proposal, (3) the Say on Pay Vote and (4) the Say When on Pay Vote.

 

What are the Board’s recommendations for how I should vote my shares?

 

The Board recommends that you vote your shares as follows:

 

 

Who can attend the Annual Meeting?

 

Only stockholders of record as of the close of business on March 23, 2011, or their duly appointed proxies, may attend the Annual Meeting. Stockholders will be asked to present valid picture identification, such as a driver’s license or passport. Please note that, if you hold your shares in “street name” (that is, through a bank, broker or other nominee), you must bring either a copy of the vote instruction form provided by your bank, broker or other nominee or a copy of a brokerage statement reflecting your stock ownership as of the record date.

 

Cameras and video recording devices will not be permitted at the Annual Meeting. A list of stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder for any purpose germane to the Annual Meeting beginning ten days prior to the Annual Meeting during ordinary business hours at 3000 Leadenhall Road, Mt. Laurel, New Jersey 08054, our principal place of business, and ending on the date of the Annual Meeting.

Do I need an admission ticket to attend the Annual Meeting?

 

Yes. Attendance at the Annual Meeting will be limited to stockholders of record as of the record date, their authorized representatives and our guests. Admission will be by admission ticket only. For registered stockholders, the top portion of the proxy card enclosed with the Proxy Statement will serve as an admission ticket. If you are a beneficial owner and hold your shares in “street name,” or through an intermediary, such as a bank, broker or other nominee, you should request an admission ticket from your bank, broker or other nominee or send a request in writing to PHH Corporation, Attention: Investor Relations, 3000 Leadenhall Road, Mt. Laurel, New Jersey 08054, and include proof of ownership of PHH Corporation common stock, such as a bank or brokerage firm account statement or letter from the bank, broker or other nominee holding your stock, confirming your beneficial ownership. Stockholders who do not obtain admission tickets in advance of the Annual Meeting may obtain them on the date of the Annual Meeting at the registration desk upon verifying their stock ownership as of the record date. In accordance with our security procedures, all persons attending the Annual Meeting must present picture identification along with their admission ticket or proof of beneficial ownership in order to gain admission to the meeting. Admission to the Annual Meeting will be expedited if admission tickets are obtained in advance. Admission tickets may be issued to others at our discretion.

 

How many votes must be present at the Annual Meeting to constitute a quorum?

 

Stockholders holding a majority of the issued and outstanding shares of our common stock as of the record date, March 23, 2011, must be present, in person or by proxy, to constitute a quorum at the Annual Meeting. As of the record date, there were 56,167,692 shares of our common stock issued and outstanding. Shares represented by abstentions on any proposal to be acted upon by stockholders at the Annual Meeting will be treated as present at the Annual Meeting for purposes of determining whether a quorum is present.

 

How many votes can be cast by all stockholders?

 

56,167,692 votes may be cast at the Annual Meeting. Each stockholder is entitled to cast one vote for each share of common stock held by such stockholder as of the record date. There is no cumulative voting and the holders of our common stock vote together as a single class.

 

What vote is needed for each of the proposals to be adopted?

 

 

Under our Corporate Governance Guidelines, a director that fails to receive more votes cast “for” than “against” his or her election or re-election is expected to tender his or her resignation from the Board and, within 90 days following certification of the stockholder vote, the Corporate Governance Committee of the Board is required to determine whether to accept the director’s resignation and to submit such recommendation for prompt consideration by the Board. Under our Corporate Governance Guidelines, the Board is required to act on any such recommendation from the Corporate Governance Committee.

 

 

 

What is a broker non-vote?

 

Generally, a broker non-vote occurs when shares held by a bank, broker or other nominee for a beneficial owner are not voted with respect to a particular proposal because (i) the nominee has not received voting instructions from the beneficial owner and (ii) the nominee lacks discretionary voting power to vote such shares. Under the rules of The New York Stock Exchange, LLC (the “NYSE”), a nominee does not have discretionary voting power with respect to “non-routine” matters.

 

Historically, uncontested director elections were deemed “routine” matters under the NYSE’s rules and banks, brokers and other nominees could vote your shares on your behalf even in the absence of specific voting instructions given by you to your bank, broker or other nominee. Recently, however, the NYSE amended its rules to prohibit banks, brokers and other nominees from exercising discretionary voting authority in uncontested director elections or with respect to executive compensation matters. As a result, director elections, whether contested or uncontested, as well as votes concerning executive compensation matters are now deemed to be “non-routine” matters and your bank, broker or other nominee may only vote your shares for director nominees and on executive compensation matters if you have provided your bank, broker or other nominee with specific voting instructions.

 

Thus, if your shares are held in “street name” and you do not provide instructions as to how your shares are to be voted in the election of directors or with respect to executive compensation matters, your bank, broker or other nominee will not be able to vote your shares for director nominees or with respect to executive compensation matters, and your shares will not be voted on such matters. We urge you to provide instructions to your bank, broker or other nominee so that your votes may be counted. You should vote your shares by following the instructions provided on the vote instruction form that you receive from your bank, broker or other nominee.

 

If you fail to provide your bank, broker or other nominee with specific voting instructions as to how you would like your shares voted for non-routine matters, your bank, broker or other nominee will not vote your shares on your

behalf and your shares will be reported as “broker non-votes.” For matters that are still considered “routine” under the NYSE’s rules (e.g., ratification of auditors), your bank, broker or other nominee may continue to exercise discretionary voting authority and may vote your shares on your behalf for such routine matters even if you fail to provide your bank, broker or other nominee with specific voting instructions as to how you would like your shares voted on such routine matters.

 

How do I vote?

 

You can vote in person or by valid proxy received by telephone, via the Internet or by mail. We urge you to vote by doing one of the following:

 

 

The deadline for voting by telephone or electronically through the Internet is 11:59 p.m. EDT on June 7, 2011.

 

Can I change my vote?

 

Yes. A proxy may be revoked at any time prior to the voting at the Annual Meeting by submitting a later dated proxy (including a proxy authorization submitted by telephone or electronically through the Internet prior to the deadline for voting by telephone or the Internet), by giving timely written notice of such revocation to our Corporate Secretary in advance of the Annual Meeting or by attending the Annual Meeting and voting in person. However, if you hold shares in “street name,” you may not vote shares in person at the Annual Meeting unless you bring with you a legal proxy from the stockholder of record. Only the latest dated and properly executed or authorized proxy that you timely submit will be counted.

 

Could other matters be decided at the Annual Meeting?

 

The Board does not intend to bring any matter before the Annual Meeting other than those described in this Proxy Statement. If any other matters properly come before the Annual Meeting, the persons named in the enclosed proxy, or their duly appointed substitutes acting at the Annual Meeting, will be authorized to vote or otherwise act in respect of any such matters in their discretion.

 

How do participants in our employee savings plans vote?

 

For participants in the PHH Corporation Employee Savings Plan and the PHH Home Loans, LLC Employee Savings Plan (the “Savings Plans”) with shares of our common stock credited to their accounts, voting instructions for the trustees of the Savings Plans are also being solicited through this Proxy Statement. In accordance with the provisions of the Savings Plans, the respective trustees will vote shares of our common stock in accordance with instructions received from the plan participants to whose accounts such shares are credited. To the extent such instructions are not received prior to 11:59 p.m. EDT on June 3, 2011, the trustees of the Savings Plans will vote the shares with respect to which they have not received instructions proportionately in accordance with the votes received for shares which they have received instructions. Instructions given with respect to shares in accounts of the Savings Plans may be changed or revoked only in writing, and no such instructions may be revoked after

11:59 p.m. EDT on June 3, 2011. Participants in the Savings Plans are not entitled to vote in person at the Annual Meeting. If a participant in the Savings Plans has shares of our common stock credited to his or her account and also owns other shares of our common stock in registered form or through a bank, broker or other nominee, he or she should receive a separate proxy card or vote instruction form for shares credited to his or her account in the Savings Plans and any other shares that he or she owns. All such proxy cards and vote instruction forms should be completed, signed and returned to ensure that votes are cast for all shares owned either directly or beneficially.

 

What if I vote for some but not all of the proposals?

 

Shares of our common stock represented by proxies received by us (whether received through the return of the enclosed proxy card or received via telephone or the Internet) where the stockholder has provided voting instructions with respect to the proposals described in this Proxy Statement, including the Director Election Proposal, the Ratification of Auditors Proposal, the Say on Pay Vote and the Say When on Pay Vote will be voted in accordance with the voting instructions so made. If your proxy card is properly executed and returned but does not contain voting instructions as to one or more of the proposals to be voted upon at the Annual Meeting, or if you give your proxy by telephone or via the Internet without indicating how you want to vote on each of the proposals to be voted upon at the Annual Meeting, your shares will be voted:

 

 

If your shares are held in street name and you do not properly instruct your bank, broker or other nominee how to vote your shares, your bank, broker or other nominee may either use its discretion to vote your shares on matters deemed “routine” by the NYSE or may not vote your shares. For any matters deemed “non-routine” by the NYSE, your bank, broker or other nominee would not be able to vote your shares on such matters. We encourage you to provide instructions to your bank, broker or other nominee by carefully following the instructions provided to ensure that your shares are voted at the Annual Meeting in accordance with your desires.

 

Who will pay for the cost of this proxy solicitation?

 

We will pay the cost of soliciting proxies on behalf of our Board. Our directors, officers and employees may solicit proxies on our behalf in person or by telephone, facsimile or electronically through the Internet, as described above. We have engaged Broadridge Financial Solutions, Inc. (“Broadridge”) to assist us in the distribution and solicitation of proxies. We will also reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending our proxy materials to beneficial owners of our common stock as of the record date.

 

Who will count and certify the vote?

 

Representatives of Broadridge will count the votes and certify the voting results. The voting results are expected to be published in a Current Report on Form 8-K filed with the SEC within four business days following the conclusion of the Annual Meeting.

 

How can I access the proxy materials and 2010 Annual Report electronically?

 

Copies of the Notice of 2011 Annual Meeting, Proxy Statement and 2010 Annual Report, as well as other materials filed by us with the SEC, are available without charge to stockholders on our corporate website at www.phh.com or upon written request to PHH Corporation, Attention: Investor Relations, 3000 Leadenhall Road, Mt. Laurel, New Jersey 08054. You can elect to receive future annual reports, proxy statements and other proxy

materials electronically by marking the appropriate box on your proxy card or vote instruction form or by following the instructions provided if you vote by telephone or via the Internet.

 

Copies of our Corporate Governance Guidelines, Independence Standards for Directors, Code of Business Conduct and Ethics for Directors, Code of Conduct for employees and officers, and the charters of each standing committee of our Board, including our Audit Committee, Human Capital and Compensation Committee, Corporate Governance Committee, and Finance and Risk Management Committee, are also available without charge to stockholders on our corporate website at www.phh.com or upon written request to PHH Corporation, Attention: Investor Relations, 3000 Leadenhall Road, Mt. Laurel, New Jersey 08054.

 

The Board has nominated Mr. James W. Brinkley and Mr. Jerome J. Selitto, currently Class III directors, for re-election at the Annual Meeting, each to serve as Class III directors until the 2014 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified, or until their earlier death, retirement or resignation. Each nominee has consented to being named in this Proxy Statement and to serve if elected. Shares of our common stock represented by duly authorized proxies will be voted FOR Messrs. Brinkley and Selitto, or any substitute nominee or nominees designated by the Board if, prior to the Annual Meeting, any nominee should become unable to serve, unless the Board determines to reduce the total number of directors in accordance with our Articles of Amendment and Restatement (as amended) (the “Charter”) and amended and restated by-laws.

 

THE BOARD RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF MESSRS. BRINKLEY AND SELITTO USING THE ENCLOSED PROXY CARD OR VOTE INSTRUCTION FORM. UNLESS MARKED TO THE CONTRARY, PROPERLY EXECUTED PROXY CARDS RECEIVED BY US WILL BE VOTED “FOR” THE ELECTION OF MESSRS. BRINKLEY AND SELITTO.

 

Our Board currently consists of seven members. The principal occupations of, and certain other information regarding, each of the Class III director nominees and our other incumbent directors, as of April 29, 2011, are set forth below. During 2010, our Board held sixteen meetings and each incumbent director and director nominee attended at least 75% of the meetings held by the Board during the period in which each such director served as a member of the Board. All directors are expected to attend each regularly scheduled meeting of the Board, as well as each annual meeting of our stockholders (subject to certain limited exceptions). All of our directors that were serving as directors on June 15, 2010, attended the 2010 Annual Meeting of Stockholders held on June 15, 2010.

 

 

Nominees to Serve as Class III Directors — Term Expires in 2014

 

 

James W. Brinkley, 74, has served as a director since January 31, 2005. In July 2009, Mr. Brinkley became Vice Chairman of Morgan Stanley Smith Barney Global Wealth Management, effective with the new joint venture of Morgan Stanley and Smith Barney. In December 2005, Mr. Brinkley became Vice Chairman of Smith Barney’s Global Private Client Group following Citigroup Inc.’s acquisition of Legg Mason Wood Walker, Incorporated (“LMWW”). Mr. Brinkley served as a director of Legg Mason, Inc., a holding company that, through its subsidiaries, provides financial services to individuals, institutions, corporations, governments and government agencies since its formation in 1981. Mr. Brinkley has served as a Senior Executive Vice President of Legg Mason, Inc. since December 1983. Mr. Brinkley became Chairman of LMWW, Legg Mason Inc.’s principal brokerage subsidiary, in February 2004. Mr. Brinkley previously served as LMWW’s Vice Chairman and Chief Executive Officer from July 2003 through February 2004, as its President from 1985 until July 2003 and as its Chief Operating Officer from February 1998 until July 2003. Mr. Brinkley is Chairman of the Mason School of Business Foundation Board of the College of William and Mary, the Founding Board Chair of Business Volunteers Unlimited of Maryland and a former Director of AARP Services Inc. Mr. Brinkley’s nearly five decades of senior management and leadership experience in the financial services industry, as well as his past contributions to the Board, led to a conclusion that it is appropriate that he be nominated to stand for re-election as a director.

 

Jerome J. Selitto, 69, has served as a director and as President and Chief Executive Officer since October 26, 2009. Prior to joining PHH, Mr. Selitto worked most recently at Ellie Mae, Inc., a provider of enterprise solutions, including an online network, software and services for the residential mortgage industry. While at Ellie Mae, Mr. Selitto initially served as a senior consultant beginning in 2007 and, later in 2007 through 2009, as Executive Vice President, Lender Division, a role in which he helped to develop a sales and marketing strategy for a new division of the company focused on linking lenders and mortgage originators on a real-time basis, allowing the lender to immediately screen for loan attributes that met its purchase criteria. Prior to that, in 2000, Mr. Selitto founded and served as Chief Executive Officer of DeepGreen Financial, a privately-held, innovative web-based federal savings bank and mortgage company that grew to become one of the nation’s most successful online home equity lenders, originating over $5 billion in home equity loans during the period from its founding in 2000 through January 2005. From 1992 to 1999, he served as founder and Vice Chairman of Amerin Guaranty Corporation (now Radian Guaranty), a mortgage insurance company he helped grow to an 8% market share and a successful IPO. Mr. Selitto previously served as a Managing Director at First Chicago Corporation and PaineWebber Inc., and as a senior executive at Kidder, Peabody & Co., William R. Hough & Company, and the Florida Federal Savings and Loan Association. Mr. Selitto’s position as our President and Chief Executive Officer and his financial services industry and leadership experience led to a conclusion that it is appropriate that he be nominated to stand for re-election as a director.

 

Continuing Class I Directors — Term Expires in 2012

 

 

James O. Egan, 62, serves as our Non-Executive Chairman of the Board and has served as a director since March 30, 2009. Mr. Egan served as a Managing Director of Investcorp International, Inc., an alternative asset management firm specializing in private equity, hedge fund offerings and real estate and technology investments, from 1998 through 2008. Mr. Egan was the partner-in-charge, M&A Practice, U.S. Northeast Region for KPMG LLP from 1997 to 1998 and served as the Senior Vice President and Chief Financial Officer of Riverwood International, Inc. from 1996 to 1997. Mr. Egan began his career with PricewaterhouseCoopers (formerly Coopers & Lybrand) in 1971 and served as partner from 1982 to 1996 and a member of the Board of Partners from 1995 to 1996. Mr. Egan possesses over forty years of business experience involving companies of varying sizes from start-ups to Fortune 500 public companies operating across numerous industries, including twenty-five years of public accounting experience having served as lead audit partner involved in the audits of annual financial statements of numerous public companies. He also has ten years of private equity experience working with portfolio companies in the US and Europe to create shareholder value. He has served on numerous Boards of Directors of both public and private companies. Mr. Egan currently serves as a director of Thermadyne Technologies Holdings, Inc. Mr. Egan’s business, financial, accounting, and private equity experience led to a conclusion that it is appropriate that he continue to serve as a director.

 

Allan Z. Loren, 72, has served as a director since June 10, 2009. Mr. Loren currently serves as an Executive Coach to chief executive officers. He served as both Chairman and Chief Executive Officer of Dun & Bradstreet from 2000 through 2004 and as Chairman in 2005. Prior to joining Dun & Bradstreet, he served as Executive Vice President and Chief Information Officer of American Express from 1994 to 2000, as President and Chief Executive Officer of Galileo International from 1991 to 1994, as President of Apple Computer USA from 1988 to 1990, and as Chief Information Officer of Apple Computer from 1987 to 1988. Mr. Loren was also the Chief Administrative Officer and Chief Information Officer of Cigna from 1979 to 1987 and 1971 to 1987, respectively. He currently serves on the Board of Trustees of Queens College, City University of New York as a director. Mr. Loren previously served on the board of directors of Fair Isaac Corporation, Hershey Foods, Reynolds & Reynolds, U.S. Cellular, and Venator Group (currently known as Foot Locker, Inc.) Mr. Loren’s operational, technological, executive coaching and leadership experience, including experience leading transformational change, led to a conclusion that it is appropriate that he continue to serve as a director.

 

Gregory J. Parseghian, 50, has served as a director since June 10, 2009. Mr. Parseghian is currently a private investor and, from September 2007 through December 2008, served as Director of Research for Brahman Capital. He has substantial experience in the financial and mortgage industries, having served in executive positions at First Boston Corp., BlackRock Financial Management and Salomon Brothers from 1982 through 1995. In 1996, Mr. Parseghian became Chief Investment Officer of Freddie Mac and served in that position until June 2003 at which time he was promoted by Freddie Mac’s board of directors to Chief Executive Officer. He currently serves on the board of directors of the Armenian Church Endowment Fund and The Langley School, both of which are non-profit organizations, and Everquest Financial, Ltd., a specialty finance holding company. Mr. Parseghian has had over twenty-five years of progressively increasing responsibility in the areas of investment banking, investment management and risk management. His background includes substantial involvement in the analysis, securitization and management of mortgage-backed securities. Mr. Parseghian’s mortgage industry and risk management experience led to a conclusion that it is appropriate that he continue to serve as a director.

 

Continuing Class II Directors — Term Expires in 2013

 

 

Deborah M. Reif, 58, has served as a director since April 1, 2010. Ms. Reif served most recently as Chief Executive Officer and President of the Equipment Services division of General Electric Company, a global transportation equipment enterprise, from 2006 through 2009 with responsibility for a global operating lease portfolio and a supply chain service strategy. From 2005 to 2006, Ms. Reif served as President of Digital Media of NBC Universal where she led the transformation of that operation to a digital business model. Prior to that, Ms. Reif served as Executive Vice President of Financial Structuring for NBC Universal where she led the assessment and restructuring of the Universal Theme Park portfolio from 2004 through 2005. From 2001 through 2004, she served as Chairman and Chief Executive Officer of Financial Guaranty Insurance Company and earlier in her career, in various financial roles of increasing importance with GE Capital from 1971 through 2001. Ms. Reif’s financial, risk management and relevant operational experience and leadership roles within a large, publicly-traded global enterprise led to a conclusion that it is appropriate that she continue to serve as a director.

 

Carroll R. Wetzel, Jr., 67, has served as a director since January 1, 2010. Mr. Wetzel also serves as a director of Exide Technologies, Inc. He previously served as Vice Chairman and lead director at Arch Wireless from 2001 through 2002; as non-executive Chairman of the Board of Directors of Safety Components International from 2000-2005; as a director of Laidlaw International, Inc. from 2004 to 2007; as a director of Brink’s Home Security Holdings, Inc. from 2008-2010; and as a director of The Brink’s Company during 2008. Before that, he spent approximately 20 years working in investment banking and corporate finance. From 1988 to 1996, Mr. Wetzel served as head of the Merger and Acquisition Group at Chemical Bank and following its merger with Chase Manhattan Bank as co-head of the Merger and Acquisition Group and also previously served as a corporate finance officer at Dillon Read & Co., Inc. and Smith Barney. Mr. Wetzel’s investment banking and financial services industry experience and his past service as a member of several other public company Board’s led to a conclusion that it is appropriate that he continue to serve as a director.

 

Independence of the Board of Directors

 

Under the rules of the NYSE and the SEC, our Board is required to affirmatively determine which directors are independent and to disclose such determination in our annual report to stockholders and in our proxy statement for each annual meeting of stockholders. Our Board has reviewed each director’s relationships with us in conjunction with our previously adopted categorical Independence Standards for Directors (the “Independence Standards”) and Section 303A of the NYSE’s Listed Company Manual (the “NYSE Listing Standards”). A copy of our categorical Independence Standards is available on our corporate website at www.phh.com under the heading “Investor Relations — Corporate Governance.” A copy of our Independence Standards is also available to stockholders upon request, addressed to the Corporate Secretary at 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054. Based on the Board’s review, our Board has affirmatively determined that each of our current non-employee directors and director nominees — Messrs. Brinkley, Egan, Loren, Parseghian and Wetzel and Ms. Reif — is independent within the meaning of our categorical Independence Standards and the NYSE Listing Standards and has no material relationship with us or any of our subsidiaries, either directly or as a partner, stockholder or officer of an organization that has a relationship with us. Our Board has also determined that Mr. Selitto, who serves as our Chief Executive Officer, is not an independent director. Accordingly, approximately 86% of our incumbent directors, representing more than two-thirds of our incumbent directors as required by our Corporate Governance Guidelines, are independent.

 

The Board has a standing Audit Committee, Human Capital and Compensation Committee, Corporate Governance Committee, and Finance and Risk Management Committee. Each such committee consists solely of directors who have been affirmatively determined to be “independent” within the meaning of the NYSE Listing Standards and our Independence Standards. In addition, the Board has a standing Executive Committee which may take certain actions on behalf of the Board when the Board is not in session.

 

Audit Committee

 

The Audit Committee assists our Board in the oversight of the integrity of our financial statements, our independent registered public accounting firm’s qualifications and independence, the performance of our independent registered public accounting firm and our internal audit function, and our compliance with legal and regulatory requirements. The Audit Committee also oversees our corporate accounting and reporting practices by:

 

 

The Audit Committee is currently comprised of Messrs. Egan (Chair), Parseghian and Wetzel. Our Board has determined that Mr. Egan qualifies as an “audit committee financial expert” within the meaning of applicable SEC rules and is an independent director under the Independence Standards and the NYSE Listing Standards. During 2010, the Audit Committee met nineteen times and each incumbent member of the Audit Committee attended at least 75% of the meetings held by the Audit Committee during the period in which each such member served as a member of the Audit Committee.

 

The Audit Committee is a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee operates pursuant to a written charter that was materially amended during 2010. A copy of the Audit Committee’s amended charter is included as Appendix A hereto and is also available on our corporate website at www.phh.com under the heading “Investor Relations — Corporate Governance.” A copy of the Audit Committee’s amended charter is also available to stockholders upon request, addressed to the Corporate Secretary at 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054.

 

Human Capital and Compensation Committee

 

The Human Capital and Compensation Committee determines and approves all elements of compensation for our senior management and our Chief Executive Officer, whose compensation is subject to further approval by the Board; reviews and approves our compensation strategy, including the elements of total compensation for senior management; reviews and approves the annual bonus and long-term bonus incentive plans, and reviews and grants equity awards for our employees. The Human Capital and Compensation Committee also assists us in developing compensation and benefit strategies to attract, develop and retain qualified employees. See “Executive Compensation” for additional information regarding the process for the determination and consideration of executive compensation. The Human Capital and Compensation Committee is also responsible for reviewing and recommending to the Board the compensation of our non-employee directors. The Human Capital and Compensation Committee is currently comprised of Messrs. Loren (Chair) and Brinkley and Ms. Reif. During 2010, the Human Capital and Compensation Committee met eighteen times and each incumbent member of the Human Capital and Compensation Committee attended at least 75% of the meetings held by the Human Capital and Compensation Committee during the period in which each such member served as a member of the Human Capital and Compensation Committee.

The Human Capital and Compensation Committee operates pursuant to a written charter that was materially amended during 2010. A copy of the Human Capital and Compensation Committee’s amended charter is included as Appendix B hereto and is also available on our corporate website at www.phh.com under the heading “Investor Relations — Corporate Governance.” A copy of the Human Capital and Compensation Committee’s amended charter is also available to stockholders upon request, addressed to the Corporate Secretary at 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054.

 

Corporate Governance Committee

 

The Corporate Governance Committee’s responsibilities with respect to its governance function include considering matters of corporate governance and reviewing and revising our Corporate Governance Guidelines, Code of Business Conduct and Ethics for Directors and our Code of Conduct for employees and officers. The Corporate Governance Committee identifies, evaluates and recommends nominees for our Board for each annual meeting (see “Corporate Governance — Nomination Process and Qualifications for Director Nominees” below); evaluates the composition, organization and governance of our Board and its committees, and develops and recommends corporate governance principles and policies applicable to us. The Corporate Governance Committee is currently comprised of Messrs. Egan (Chair), Brinkley, Loren and Parseghian and Ms. Reif. During 2010, the Corporate Governance Committee met eight times and each incumbent member of the Corporate Governance Committee attended at least 75% of the meetings held by the Corporate Governance Committee during the period in which each such member served as a member of the Corporate Governance Committee.

 

The Corporate Governance Committee operates pursuant to a written charter that was materially amended during 2010. A copy of the Corporate Governance Committee’s amended charter is included as Appendix C hereto and is also available on our corporate website at www.phh.com under the heading “Investor Relations — Corporate Governance.” A copy of the Corporate Governance Committee’s amended charter is also available to stockholders upon request, addressed to the Corporate Secretary at 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054.

 

Finance and Risk Management Committee

 

The Finance and Risk Management Committee was formed on February 27, 2008 to assist our Board in fulfilling its oversight responsibilities with respect to the assessment of our overall capital structure and its impact on the generation of appropriate risk adjusted returns, as well as the existence, operation and effectiveness of our risk management programs, policies and practices. The Finance and Risk Management Committee is currently comprised of Messrs. Parseghian (Chair) and Wetzel and Ms. Reif. During 2010, the Finance and Risk Management Committee met nine times and each incumbent member of the Finance and Risk Management Committee attended at least 75% of the meetings held by the Finance and Risk Management Committee during the period in which each such member served as a member of the Finance and Risk Management Committee.

 

The Finance and Risk Management Committee operates pursuant to a written charter that was materially amended during 2010. A copy of the Finance and Risk Management Committee’s amended charter is included as Appendix D hereto and is also available on our corporate website at www.phh.com under the heading “Investor Relations — Corporate Governance.” A copy of the Finance and Risk Management Committee’s amended charter is also available to stockholders upon request, addressed to the Corporate Secretary at 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054.

 

Executive Committee

 

The Executive Committee may generally exercise all of the powers of our Board when the Board is not in session, including, subject to certain limitations, the power to authorize the issuance of stock, except that the Executive Committee has no power to alter, amend or repeal our by-laws or any resolution or resolutions of the Board, declare any dividend or make any other distribution to our stockholders, appoint any member of the Executive Committee or take any other action which legally may be taken only by the full Board. The Executive Committee is currently comprised of Messrs. Egan, Brinkley, Loren, Parseghian and Wetzel and Ms. Reif. During 2010, the Executive Committee did not meet.

 

Board of Directors’ Role in Risk Oversight

 

Our business and affairs are managed under the direction of the Board in accordance with our amended and restated by-laws. The role of the Board is one of oversight, including as to matters relating to risk management. Our management is responsible for managing our day-to-day operations and affairs, including the development and implementation of systems and processes to identify and monitor risks to the Company and policies and procedures to ensure that risks undertaken by the Company are consistent with our business objectives and risk tolerances. To assist it in fulfilling its oversight function, including as to matters related to risk management, the Board has established four standing committees: the Audit Committee, the Human Capital and Compensation Committee, the Corporate Governance Committee, and the Finance and Risk Management Committee. Each standing committee regularly reports to the Board and is responsible for risk oversight in connection with actions taken by such committee consistent with the exercise of fiduciary duties by the directors serving on such committee. Our risk management process is intended to ensure that our risks are undertaken knowingly and purposefully.

 

The primary purpose of the Finance and Risk Management Committee is to assist the Board in fulfilling its oversight responsibilities with respect to the assessment of our overall capital structure and its impact on the generation of appropriate risk adjusted returns, as well as the existence, operation and effectiveness of our risk management programs, policies and practices, among other things. The Finance and Risk Management Committee regularly discusses with our management, including, among others, our Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and Treasurer, risks facing the Company and management’s plans and initiatives undertaken to mitigate such risks.

 

The Audit Committee charter provides that the Audit Committee is responsible for discussing our guidelines and policies governing the process by which we undertake risk assessment and risk management, including our major financial risk exposures and the steps our management has taken to monitor and control such exposures. Further, as part of our periodic reporting process, management reviews with the Audit Committee our disclosure process and the disclosures contained in our periodic reports filed with the SEC, including disclosure concerning our risk factors.

 

Board Leadership Structure

 

Since 2005, our Chairman of the Board has been an independent, non-employee director. The Chairman of the Board is elected by a majority vote of the directors. Currently, James O. Egan serves as our non-executive Chairman of the Board, a position he has held since June 17, 2009. Mr. Egan has served as a director and as Chair of the Audit Committee of the Board since March 30, 2009. Mr. Egan has also served as Chair of the Corporate Governance Committee of the Board since June 17, 2009.

 

In his capacity as non-executive Chairman of the Board, Mr. Egan leads all meetings of our Board at which he is present, but does not serve as an employee or corporate officer. The non-executive Chairman of the Board serves on appropriate committees as requested by the Board, sets meeting schedules and agendas and manages information flow to the Board to assure appropriate understanding of, and discussion regarding matters of interest or concern to the Board. The non-executive Chairman of the Board also has such additional powers and performs such additional duties consistent with organizing and leading the actions of the Board as the Board may from time-to-time prescribe.

 

The decision to separate the positions of Chairman of the Board and Chief Executive Officer was made at the time of our spin-off in early 2005. Although the Board does not currently have a policy requiring that the positions of Chairman of the Board and Chief Executive Officer be separated, the Board continues to believe that it is appropriate for the Chairman of the Board to be an independent, non-employee director to ensure that the Board operates independently of management in the fulfillment of its oversight function and that the matters presented for consideration by the Board and its committees reflect matters of key importance to the Company and its stockholders as determined by the independent directors.

Executive Sessions of Non-Management Directors

 

Executive sessions of non-management directors are held regularly by the Board and its Committees without management present to discuss the criteria upon which the performance of the Chief Executive Officer and other senior executives is based, the performance of the Chief Executive Officer and other senior executives against such criteria, the compensation of the Chief Executive Officer and other senior executives and any other relevant matters. Our Board has designated Mr. Egan, our non-executive Chairman of the Board and Chairman of the Corporate Governance Committee, as the presiding director of executive sessions of the non-management directors of the Board.

 

Corporate Governance Guidelines

 

The Board has adopted Corporate Governance Guidelines to assist the Board in monitoring the effectiveness of decision-making, both at the Board and management levels and to enhance long-term stockholder value. The Corporate Governance Guidelines outline the following:

 

 

Our Corporate Governance Guidelines are available on our corporate website at www.phh.com under the heading “Investor Relations — Corporate Governance.” A copy of our Corporate Governance Guidelines is also available to stockholders upon request, addressed to the Corporate Secretary at 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054.

 

Code of Business Conduct and Ethics for Directors

 

We are committed to conducting business in accordance with the highest standards of business ethics and complying with applicable laws, rules and regulations. In furtherance of this commitment, our Board promotes ethical behavior and has adopted a Code of Business Conduct and Ethics for Directors (the “Directors Code”) that is applicable to all of our directors. The Directors Code provides, among other things:

 

 

The Directors Code is available on our corporate website at www.phh.com under the heading “Investor Relations — Corporate Governance.” We will post any amendments to the Directors Code, or waivers of its provisions, to our corporate website under the heading “Investor Relations — Corporate Governance.” A copy of the Directors Code is also available to stockholders upon request, addressed to the Corporate Secretary at 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054.

Code of Conduct for Employees and Officers

 

Our Board has also adopted a Code of Conduct for employees and officers (the “Employees and Officers Code”) that is applicable to all of our officers and employees, including our Chief Executive Officer and Chief Financial Officer. The Employees and Officers Code provides, among other things:

 

 

The Employees and Officers Code is available on our corporate website at www.phh.com under the heading “Investor Relations — Corporate Governance.” We will post any amendments to the Employees and Officers Code, or waivers of its provisions for any of our executive officers, to our corporate website under the heading “Investor Relations — Corporate Governance.” A copy of the Employees and Officers Code is also available to stockholders upon request, addressed to the Corporate Secretary at 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054.

 

Nomination Process and Qualifications for Director Nominees

 

The Board has established certain procedures and criteria for the selection of nominees for election to our Board. In accordance with such procedures and criteria as set forth in our Corporate Governance Guidelines, the Board seeks members from diverse professional and personal backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. Pursuant to its charter, the Corporate Governance Committee is required to identify individuals qualified to become members of the Board, which shall be consistent with the Board’s criteria for selecting new directors. In identifying possible director candidates, the Corporate Governance Committee considers recommendations of professional search firms, stockholders, and members of management or the Board. In evaluating possible director candidates, the Corporate Governance Committee, consistent with the Board’s Corporate Governance Guidelines and its charter, considers criteria such as skills, experience, age, diversity, and availability to prepare, attend and participate in Board and Board Committee meetings, as well as personal qualities of leadership, character, judgment, and reputation for integrity and adherence to the highest ethical standards, so as to enhance the Board’s ability to oversee in the interest of our stockholders our affairs and business, including, when applicable, to enhance the ability of Committees of the Board to fulfill their duties and/or to satisfy any independence requirements imposed by law, regulation or NYSE requirement. In considering diversity, in particular, the Corporate Governance Committee considers general principles of diversity in the broadest sense. The Corporate Governance Committee seeks to recommend the nomination of directors who represent different qualities and attributes and a mix of professional and personal backgrounds and experiences that will enhance the quality of the Board’s deliberations and oversight of our business. The Corporate Governance Committee is also responsible for conducting a review of the credentials of individuals it wishes to recommend to the Board as a director nominee, recommending director nominees to the Board for submission for a stockholder vote at either an annual meeting of stockholders or at any special meeting of stockholders called for the purpose of electing directors, reviewing the suitability for continued service as a director of each Board member when his or her term expires and when he or she has a significant change in status, including but not limited to an employment change, and recommending whether such a director should be re-nominated to the Board or continue as a director. The Corporate Governance Committee’s assessment of director nominees includes an examination of whether the individual is independent and whether the individual’s service as a director may give rise to a conflict of interest, as

well as consideration of diversity, age, skills and experience in the context of the needs of the Board. Additionally, the Corporate Governance Committee conducts a vetting process that generally includes, among other things, personal interviews, discussions with professional references, background and credit checks, and resume verification. When formulating its director nominee recommendations, the Corporate Governance Committee also considers the advice and recommendations from others as it deems appropriate.

 

Our amended and restated by-laws provide the procedure for stockholders to make director nominations either at any annual meeting of stockholders or at any special meeting of stockholders called for the purpose of electing directors. A stockholder who is both a stockholder of record on the date of notice as provided for in our amended and restated by-laws and on the record date for the determination of stockholders entitled to vote at such meeting and gives timely notice can nominate persons for election to our Board either for an annual meeting of stockholders or at any special meeting of stockholders called for the purpose of electing directors. The notice must be delivered to or mailed and received by the Corporate Secretary at 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054:

 

 

The stockholder’s notice to our Corporate Secretary must be in writing and include the following information, as more fully described in Section 1.10 of our amended and restated by-laws:

 

(i) as to each person whom the stockholder proposes to nominate for election as a director (each, a “Proposed Nominee”):

 

 

(ii) as to the stockholder giving the notice of any Proposed Nominee and any Stockholder Associated Person (as defined in the amended and restated by-laws):

 

 

(iii) as to the stockholder giving the notice, any Stockholder Associated Person with an interest or ownership referred to in (ii) above, and any Proposed Nominee, the name and address of such stockholder, as they appear on our stock ledger, and the current name and business address, if different, of each such Stockholder Associated Person and any Proposed Nominee;

 

(iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the Proposed Nominee(s) in its notice, and

 

(v) any other information relating to such stockholder that would be required to be disclosed in connection with solicitations of proxies for election of the Proposed Nominee pursuant to Regulation 14A of the Exchange Act.

 

Such notice must be accompanied by a written consent of each Proposed Nominee to be named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth in our amended and restated by-laws. If the chairman of the meeting determines that a nomination was not made in accordance with the above-described procedures, the chairman of the meeting shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. No adjournment or postponement of a meeting of stockholders shall commence a new period for the giving of notice of a stockholder proposal under our amended and restated by-laws.

 

Communication with Non-Management Directors

 

In accordance with our Corporate Governance Guidelines, all stockholder and interested party communications to any director, the non-management directors as a group or the Board shall be forwarded to the attention of the Chair of the Corporate Governance Committee, c/o the Corporate Secretary, 3000 Leadenhall Road, Mt. Laurel, New Jersey, 08054. The Corporate Secretary shall review all such stockholder and interested party communications and discard those which (i) are not related to our business or governance of our Company, (ii) are commercial solicitations which are not relevant to the Board’s responsibilities and duties, (iii) pose a threat to health or safety or (iv) the Chair of the Corporate Governance Committee has otherwise instructed the Corporate Secretary not to forward. The Corporate Secretary will then forward all relevant stockholder and interested party communications to the Chair of the Corporate Governance Committee for review and dissemination.

 

Review and Approval of Related Person Transactions

 

Pursuant to the Audit Committee’s amended charter, the Audit Committee reviews and approves all transactions with related persons, including executive officers and directors, as described in Item 404(a) of Regulation S-K promulgated by the U.S. Securities and Exchange Commission. We review any relationships or transactions in which we and our directors or executive officers, or their immediate family members, are participants to determine whether these persons have a direct or indirect material interest. Our Directors Code and our Employees and Officers Code provide specific provisions regarding such relationships between our directors or executive officers and us. Our Directors Code requires that any monetary arrangement for goods or services between, on the one hand, an independent Director, or any member of an independent Director’s immediate family, and, on the other hand, either the Company or a member of our senior management be subject to approval by the Board as a whole, unless it falls into one of the following categories in which case approval by the Board as a whole is not required:

 

 

See “Corporate Governance — Code of Business Conduct and Ethics for Directors” and “Corporate Governance — Code of Conduct for Employees and Officers” above for more information.

 

Transactions with BlackRock, Inc.

 

On February 8, 2011, BlackRock, Inc. (“BlackRock”) filed a Schedule 13G/A with the U.S. Securities and Exchange Commission disclosing that its subsidiaries held, in the aggregate, approximately 8.15% of our common stock as of December 31, 2010. Subsidiaries of BlackRock provide us with various investment management and risk analytics products and services. During the year ended December 31, 2010, we paid subsidiaries of BlackRock approximately $125,000 for investment management products and services. During the year ending December 31, 2011, we expect to pay subsidiaries of BlackRock approximately $1.6-1.7 million for investment management and risk analytics products and services. All of our agreements with BlackRock’s subsidiaries were made pursuant to arm’s length transactions at prevailing market rates for the services or products rendered or delivered.

 

Employment of Mr. George J. Kilroy’s Immediate Family Member

 

Bradford C. Burgess, who serves as a Vice President, Sales at PHH Arval, is the son-in-law of George J. Kilroy, our Executive Vice President, Fleet. Mr. Burgess received compensation, including base and bonus payments, of $288,750 for 2010 and was eligible to participate in employee benefit plans available to employees generally on a non-discriminatory basis. His compensation and benefits were commensurate with other employees in comparable positions at PHH Arval. Mr. Kilroy has not been involved in decisions with respect to Mr. Burgess’ compensation or job performance, and procedures have been established to limit Mr. Kilroy’s access to such information.

 

Consumer Credit Loans in the Ordinary Course of Business

 

One or more of our mortgage lending subsidiaries has made, in the ordinary course of their respective consumer credit businesses, mortgage loans and/or home equity lines of credit to certain of our directors and executive officers or their immediate family members of types generally made available to the public by such mortgage lending subsidiaries. Such mortgage loans and/or home equity lines of credit were made on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with our other customers generally, and they did not involve more than the normal risk of collectability or present other unfavorable features. Generally, we sell these mortgage loans and/or home equity lines of credit, soon after origination, into the secondary market in the ordinary course of business.

 

Our non-employee director compensation program is intended to align our non-employee directors’ interests with those of our stockholders by providing for equity-based compensation, to focus our non-employee directors on sustainable value creation and to provide our non-employee directors with market-competitive compensation for their Board service. Members of our Board who are also our officers or employees do not receive any additional compensation for serving as a director. Currently, our only employee director is our Chief Executive Officer.

 

We do not have share ownership guidelines for non-employee directors because our non-employee directors are restricted from selling their vested equity-based compensation until at least one year after their Board service ends. We believe that this restriction, along with the payment of at least 50% of non-employee director compensation in the form of equity-based compensation, is more effective than stock ownership guidelines in aligning non-employee directors with stockholder interests.

 

The Corporate Governance Committee had been responsible for reviewing and recommending to the Board the compensation of our non-employee directors since 2005. In July 2010, in connection with the adoption of new Charters for our Corporate Governance Committee and Human Capital and Compensation Committee, the Human Capital and Compensation Committee assumed responsibility for reviewing and making recommendations to the Board concerning our non-employee director compensation. This shift in responsibility has not changed the requirement that the Human Capital and Compensation Committee recommends to the full Board the compensation for non-employee directors, and the full Board must approve any changes to that program. None of our executive officers played a role in determining or recommending the amount or form of non-employee director compensation.

 

In 2009, the Corporate Governance Committee and the Compensation Committee (the predecessor of the Human Capital and Compensation Committee) jointly requested that the Compensation Committee’s compensation consultant undertake an analysis of market-competitive director compensation levels and practices. Although the consultant’s analysis determined that our non-employee director compensation program was below market-competitive median levels, the Corporate Governance Committee decided to defer any discussion of potential changes to the non-employee director compensation program until mid-2010. Consistent with that decision, the Human Capital and Compensation Committee asked its compensation consultant in mid-2010 to again analyze market-competitive director compensation levels and practices. The analysis revealed that our non-employee directors were paid below a competitive market level.

 

Our non-employee director compensation program in effect at the time of the review in 2010 was the same one that had been implemented in early 2005, and had not been increased or otherwise modified since that time. That program had the following annual compensation for non-employee directors, with all retainers split equally between cash and restricted stock units (“RSUs”) under the PHH Corporation Amended and Restated 2005 Equity and Incentive Plan (the “2005 Equity and Incentive Plan”):

 

 

Based on the 2010 review, the Human Capital and Compensation Committee recommended to the Board, and the Board adopted, changes to the non-employee director compensation program. The Board took into account the following factors in considering its changes:

 

 

 

The Board adopted the following market competitive non-employee director compensation program on a prospective basis effective August 18, 2010:

 

 

The Board also eliminated new director equity grants for non-employee directors that first commence service on the Board after August 18, 2010. As Mr. Wetzel and Ms. Reif first commenced service on the Board during 2010 and prior to August 18, 2010, they each received new director equity grants during 2010. Mr. Wetzel joined the Board on January 1, 2010, and received a new director equity grant on March 31, 2010. Ms. Reif joined the Board on April 1, 2010, and received a new director equity grant on June 30, 2010. No further new director equity grants will be made to new non-employee directors that first commence service on the Board unless the Board approves a subsequent change to our non-employee director compensation program.

 

Consistent with our prior non-employee director compensation program, all Committee stipends are payable 50% in cash and 50% in the form of RSUs under the 2005 Equity and Incentive Plan. The Non-Executive Chairman of the Board Retainer is payable $122,500 in cash and $172,500 in RSUs under the 2005 Equity and Incentive Plan. The Non-Executive Board Member Retainer is payable $85,000 in cash and $135,000 in RSUs under the 2005 Equity and Incentive Plan.

 

With the exception of the now-eliminated new director equity grants, non-employee director compensation is paid in arrears in four equal quarterly installments at the end of each calendar quarter (each payment date, a “Fee Payment Date”) and is paid at least 50% in RSUs that are granted under our 2005 Equity and Incentive Plan (the “Director RSUs”) and the remainder in cash. It is our practice to pro rate non-employee director compensation for the portion of each calendar quarter during which an individual director actually serves as a member or chairperson of the Board or a committee of the Board.

 

Each Director RSU represents the right to receive one share of our common stock upon settlement of such Director RSU. Director RSUs are immediately vested and are settled in shares of our common stock one year after the director is no longer a member of the Board. Director RSUs may not be sold or otherwise transferred for value prior to the director’s termination of service on the Board.

 

The number of Director RSUs granted to each non-employee director on each Fee Payment Date is determined by dividing the total dollar amount of compensation that is payable to each such non-employee director on such Fee Payment Date in the form of Director RSUs by the closing price of our common stock on the NYSE on such Fee

Payment Date (or, if there was no trading of our common stock on the NYSE on such Fee Payment Date, the closing price of our common stock on the date last preceding such Fee Payment Date upon which our common stock was traded on the NYSE). Fractional Director RSUs are not granted and any fractional portion resulting from the foregoing calculation is paid in cash.

 

As previously disclosed, the Board also terminated the PHH Corporation Directors’ Deferred Compensation Plan, as well as various other inactive compensation related plans, during 2010. None of our current non-employee directors and none of our former non-employee directors that served on the Board during 2010 received any payments or distributions in connection with the termination of such plans.

 

We do not maintain a pension plan for non-employee directors. Non-employee directors did not receive any form of compensation for 2010 other than as described above.

 

Director Compensation Table

 

The following table sets forth the compensation paid to or earned by each of our current and former non-employee directors that served as directors during 2010:

 

 

 

 

 

 

The Audit Committee has appointed Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011. The submission of this matter for approval by stockholders is not legally required; however, the Board believes that such submission provides stockholders an opportunity to provide feedback to the Board on an important issue of corporate governance. If stockholders do not approve the appointment of Deloitte & Touche LLP, the selection of such firm as our independent registered public accounting firm will be reconsidered. In the event that Deloitte & Touche LLP is unable to serve as independent registered public accounting firm for the fiscal year ending December 31, 2011, for any reason, the Audit Committee will appoint another independent registered public accounting firm. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting, will be given an opportunity to make a statement if they desire to do so and will be available to respond to appropriate stockholder questions regarding the Company.

 

THE BOARD RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2011. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED BY US WILL BE VOTED “FOR” THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2011.

 

In connection with the preparation of the Company’s consolidated financial statements for the year ended December 31, 2010, the Audit Committee:

 

 

 

Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, for filing with the Securities and Exchange Commission.

 

 

Our Audit Committee is responsible for pre-approving all audit services and permitted non-audit services, including the fees and terms thereof, to be performed for us and our subsidiaries by our independent registered public accounting firm, Deloitte & Touche LLP (the “Independent Auditor”). The Audit Committee has adopted a pre-approval policy and implemented procedures that provide that all engagements of our Independent Auditor are reviewed and pre-approved by the Audit Committee, except for such services that fall within the de minimis exception for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act that our Audit Committee approves prior to the completion of the audit. The pre-approval policy also permits the delegation of pre-approval authority to a member of the Audit Committee between meetings of the Audit Committee, and any such approvals are reviewed and ratified by the Audit Committee at its next scheduled meeting.

 

For the years ended December 31, 2010 and 2009, professional services were performed for us by our Independent Auditor pursuant to the oversight of our Audit Committee. Representatives of our Independent Auditor are expected to be present at the Annual Meeting, will be given an opportunity to make a statement if they desire to do so and will be available to respond to appropriate stockholder questions regarding the Company.

 

Set forth below are the fees billed to us by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates. All fees and services were approved in accordance with the Audit Committee’s pre-approval policy.

 

 

Audit Fees.  Audit fees primarily related to the annual audits of the Consolidated Financial Statements included in our Annual Reports on Form 10-K and our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, the reviews of the Condensed Consolidated Financial Statements included in our Quarterly Reports on Form 10-Q and services provided in connection with regulatory and statutory filings.

 

Audit-Related Fees.  Audit-related fees primarily related to audit fees for our employee benefit plans, comfort letters for registration statements and agreed upon procedures.

 

Tax Fees.  Tax fees related to tax compliance, tax advice and tax planning.

 

All Other Fees.  The aggregate fees billed for all other services during the years ended December 31, 2010 and 2009 were not significant and primarily related to software license fees.

 

In accordance with recently enacted Section 14A of the Securities Exchange Act of 1934, as amended, and rules promulgated by the SEC, we are requesting the approval of the following advisory resolution:

 

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 404 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED.”

 

Although the foregoing resolution is only advisory in nature and is not binding on the Board or the Company, we intend to review the voting results with the Board and the Human Capital and Compensation Committee of the Board so that such voting results may be taken into consideration in connection with future executive compensation decisions.

 

THE BOARD RECOMMENDS A VOTE “FOR” THE SAY ON PAY VOTE. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED BY US WILL BE VOTED “FOR” THE SAY ON PAY VOTE.

 

In accordance with recently enacted Section 14A of the Securities Exchange Act of 1934, as amended, and rules promulgated by the SEC, we are requesting an advisory vote as to whether future Say on Pay advisory votes on executive compensation should occur every year, every two years or every three years. Stockholders will be able to specify one of four choices for this proposal on their proxy card: one year, two years, three years or abstain. Stockholders are not voting to approve or disapprove the Board’s recommendation for an annual Say on Pay advisory vote on executive compensation.

 

Although this Say When on Pay Vote is only advisory in nature and is not binding on the Board or the Company, we intend to review the voting results with the Board and the Human Capital and Compensation Committee of the Board so that such voting results may be taken into consideration in connection with determining the frequency with which we will hold future Say on Pay Vote advisory votes on executive compensation.

 

THE BOARD RECOMMENDS A VOTE FOR AN “ANNUAL” SAY ON PAY ADVISORY VOTE ON EXECUTIVE COMPENSATION. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED BY US WILL BE VOTED FOR AN ‘‘ANNUAL” SAY ON PAY ADVISORY VOTE ON EXECUTIVE COMPENSATION.

 

The Human Capital and Compensation Committee reviewed and discussed the Compensation Discussion and Analysis set forth below with management and, based on such review, recommended to the Board of Directors that the Compensation Discussion and Analysis set forth below be included in the Company’s Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2010.

 

 

Executive Summary

 

We Delivered Solid Operational Performance and Shareholder Value Creation in 2010.  We continued our turnaround with solid operational performance in 2010. We deepened market penetration and enhanced efficiencies through our transformation initiative. Our solid operating performance was accomplished in the context of a challenging year in the mortgage and fleet management services industries. We confronted these challenges by engaging in a transformation initiative that delivered $88 million in estimated annualized run rate savings through increased operating efficiencies. Both our mortgage and fleet businesses improved their operating performance.

 

 

 

 

 

We intend to continue our transformation, as we reinvest some of the initiative savings into strengthened capabilities in sales, marketing, and enterprise risk management, while building scalability for profitable growth through technology. We are committed to delivering continuous improvement in mortgage origination market share and profitability, fleet segment profitability, and productivity, on a sustainable basis.

 

Our Compensation Program is Designed to Deliver Pay-for-Performance.  Our compensation program places a strong emphasis on pay-for-performance. We created and implemented a pay-for-performance-based Total Rewards Philosophy which aligns the compensation programs with sustainable shareholder value creation. Under the Philosophy, all of our compensation programs should:

 

 

The compensation program design is based on the Total Rewards Philosophy, and has the following elements:

 

 

Our 2010 Compensation Program Delivered on the Pay-for-Performance Promise.  Our compensation program was designed to provide executives and other employees with rewards in 2010 that aligned with sustainable shareholder value creation.

 

We did not make base salary increases in 2010.  We did not increase base salaries for the Named Executive Officers in 2010 due to the challenging business environment.

 

The 2010 Management Incentive Plan (“MIP”) paid out at below target levels.  Our annual cash incentive plan (called the Management Incentive Plan, or “MIP”) had the following design elements for 2010:

 

 

Our Core Earnings (Pre-Tax) increased 20% over 2009, but were between 95% and 99% of Plan target performance. The Human Capital and Compensation Committee therefore determined that each individual’s maximum potential payout was 75% of their respective individual target amount in accordance with the 2010 MIP design. Actual payouts were at or below that level, depending on whether the individual met all of his or her MBOs.

 

Our Long-term Incentive Plan provided rewards commensurate with shareholder value creation.  In 2008 and 2009 (as well as prior to that), we provided RSUs to key executives, as well as stock options to our senior executive group. The RSUs granted in 2008 were time-vested but provided for accelerated vesting based upon achievement of profitability goals. Our actual performance resulted in the accelerated vesting of a portion of such RSUs in 2010, with the opportunity for continued vesting of the remaining unvested portion of such RSUs in future years. The RSUs granted in 2009 to the Named Executive Officers employed by us at the time such RSUs were granted are performance-vested RSUs that only vest upon achievement of a cumulative three year profitability goal. This focus on multi-year profitability, and the granting of stock options, continued to align executives with shareholders by making wealth accumulation contingent on both long-term financial performance and share price appreciation.

 

We did not provide a broad-based equity grant in 2010, as we were beginning our transformation initiative, and in the process of developing a new long-term incentive program. We did, however, make equity awards to certain newly hired employees in 2010. We intend to evaluate whether long-term incentive grants will be made to key executives in 2011, consistent with our Total Rewards Philosophy.

 

Executive Compensation Program

 

Introduction.  We continued our transformation in 2010, building upon the significant changes made in 2009. We built upon our positive 2009 results through process and business improvements, resulting in cost savings and

improved operational performance. These changes were accompanied by changes to the executive compensation programs in 2010, as we continued our efforts to better align employee rewards with sustainable profitable growth.

 

In 2010, at the request of the Human Capital and Compensation Committee and in consultation with the Committee’s compensation consultant, we continued to work towards developing a new executive compensation program that is market-competitive, pay-for-performance driven, and aligned with our achievement of our short-term and long-term strategic objectives and sustainable stockholder value creation. This approach consisted of:

 

1. Designing a new Management Incentive Plan for 2010 that aligned rewards with achievement of our key objectives, including the focus on achieving Core Earnings (Pre-Tax), and the continuing transformation objectives that are reengineering our operations and organizational structure. The 2010 Management Incentive Plan resulted in payouts commensurate with not only overall operating performance, but meeting our underlying key organizational objectives; and

 

2. Developing a new Total Rewards Philosophy in 2010 that focused on sustainable shareholder value creation, and was the underpinning of executive compensation decision-making.

 

These activities were expected to form the basis for continued improvements in the executive compensation program in 2011, with consideration of the following potential changes:

 

1. Designing a new, integrated executive compensation program, based on our Total Rewards Philosophy, our key strategic objectives, including transformation, and leading market practices around compensation design and risk.

 

2. Designing a new long-term incentive plan consistent with the integrated executive compensation program in the context of leading market practices around the linkage to sustainable stockholder value creation and risk management.

 

Corporate Governance

 

Human Capital and Compensation Committee Oversight of Executive Compensation.  During 2010, the Board of Directors approved a new Human Capital and Compensation Committee Charter which sets forth the purpose, composition, authority and responsibilities of the Committee. The new Charter reflects the Human Capital and Compensation Committee’s focus on sustainable shareholder value creation as the underpinning of our compensation programs, and the expanded scope of the Committee’s responsibilities. The Charter further demonstrates the Human Capital and Compensation Committee’s responsibilities for leadership development and succession planning, overall human capital development, Directors compensation, compensation risk assessments, employee benefits plans, and compensation disclosure.

 

The Human Capital and Compensation Committee retained the responsibility for overseeing our executive compensation policies, including evaluating and approving the compensation of our Named Executive Officers as listed in the “Summary Compensation Table” below. The Human Capital and Compensation Committee reviews and determines the base salary, annual and long-term incentive awards, equity awards and other compensation for each Named Executive Officer, including our President and Chief Executive Officer, and evaluates our compensation policies. The Human Capital and Compensation Committee also has the authority to engage and retain executive compensation consultants to assist with such evaluations, and has, in fact, retained PricewaterhouseCoopers LLP (“PwC”) as its consultant. Board members who are not members of the Human Capital and Compensation Committee are not involved in the decision surrounding the engagement and/or retention of the Human Capital and Compensation Committee’s consultant.

 

Role of Management in Executive Compensation Decisions.  Generally, our Chief Executive Officer makes recommendations to the Human Capital and Compensation Committee as it relates to the compensation of our other executive officers. In addition, our executive officers, including our Chief Executive Officer, Chief Human Resources Officer, Chief Financial Officer and other human resources personnel, may provide input and make proposals as requested by the Human Capital and Compensation Committee regarding the design, operation, objectives and values of the various components of compensation in order to provide appropriate performance and retention incentives for key employees. These proposals may be made on the initiative of the Chief Executive

Officer, the executive officers or upon the request of the Human Capital and Compensation Committee. Our Chief Executive Officer is not involved in deliberations relating to his own compensation.

 

During 2010, our Chief Executive Officer, in consultation with our Chief Human Resources Officer and the Human Capital and Compensation Committee’s compensation consultant, made recommendations to the Committee concerning the compensation of executive officers hired in 2010, including Mr. Hayden, the performance achievement of our executive officers against their individual MBOs and corresponding payouts under the 2010 MIP, and the terms of Mr. Danahy’s severance agreement. The Committee makes the ultimate decisions relating to executive compensation design and payouts to our executive officers other than our Chief Executive Officer and may take into consideration the recommendations, if any, of our Chief Executive Officer in connection with determining the amount or form of compensation paid to our executive officers. The Committee meets in executive session to determine the Chief Executive Officer’s compensation and presents its recommendations on the Chief Executive Officer’s compensation to the full Board of Directors for final approval.

 

Executive Compensation Consultants.  During 2010, the Human Capital and Compensation Committee retained PwC to assist with the evaluation of our executive compensation. In determining to retain PwC, the Human Capital and Compensation Committee considered PwC’s prior engagements by the Committee since February 2008, which was prior to Mr. Egan joining the Board, and did not consider Mr. Egan’s past employment relationship with PwC that ended in 1996. Mr. Egan is not a member of the Human Capital and Compensation Committee and played no role in the Committee’s decision to engage PwC. Pursuant to its engagement, PwC analyzed and provided comparative executive and director compensation data and compensation program design assistance for the Human Capital and Compensation Committee’s consideration in evaluating and setting the compensation of the Named Executive Officers and the overall structure of our compensation policies. The compensation services PwC provided to the Human Capital and Compensation Committee resulted in approximately $288,000 in fees paid to PwC during 2010. During 2010, with notification to the Committee, PwC also provided certain other consulting services to management. These additional services were provided by individuals different from those who work directly with the Human Capital and Compensation Committee. These additional services, which mainly related to corporate tax management/planning, internal audit outsourcing and other consulting services, resulted in payments to PwC of approximately $625,000 during 2010. The Human Capital and Compensation Committee believes that these other services, which are performed by PwC employees other than the PwC employees providing compensation consulting services to the Human Capital and Compensation Committee, do not compromise PwC’s ability to provide the Human Capital and Compensation Committee with an independent perspective on executive compensation. The Human Capital and Compensation Committee has asked PwC to provide executive compensation consulting services to the Committee again in 2011.

 

Compensation Process

 

Executive Compensation Objectives.  The primary objective of our executive compensation policies, as overseen by the Human Capital and Compensation Committee, is to attract, retain and motivate qualified executive officers to manage our business in order to create sustainable profitable growth and underlying stockholder value creation within approved risk profiles. Our executive compensation policies are intended to facilitate the achievement of our short-term and long-term business strategies through aligning compensation with performance by:

 

 

The Human Capital and Compensation Committee does not rely upon a fixed formula or specific numerical criteria in determining each Named Executive Officer’s total compensation or the allocation of compensation among the various components of compensation described below. Moreover, the Human Capital and Compensation

Committee does not have a specific policy for the allocation of compensation between short-term and long-term compensation or cash and equity compensation. The Human Capital and Compensation Committee considers this to be a “best practice,” such that the Committee has the flexibility to make compensation-related decisions that reflect our changing business needs. The Human Capital and Compensation Committee exercises its business judgment, consistent with our Total Rewards Philosophy, in determining total compensation based upon the following criteria:

 

 

Based upon its analysis of these criteria, the Human Capital and Compensation Committee determines each component of executive compensation (as discussed below) for the Named Executive Officers, taking into consideration the total compensation relative to Peer Group (as defined in “Benchmarking” below) and other market-competitive practice. The Human Capital and Compensation Committee presents its recommendations on the Chief Executive Officer’s compensation to the full Board of Directors for final approval.

 

Benchmarking.  The Human Capital and Compensation Committee believes that an understanding of market-competitive practices is a critical underpinning to making sound executive compensation decisions. In early 2009, the peer group against which our executive compensation was benchmarked was revised to include the following seven companies with whom we compete for executive talent and/or investor capital and that operate businesses similar to ours, including mortgage, leasing or financial services:

 

 

In mid-2010, Human Capital and Compensation Committee further revised the peer group for purposes of benchmarking executive compensation for newly hired executive officers, including Mr. Hayden, to ensure that we were competitive in attracting executive talent. The peer group that was utilized for benchmarking newly hired executive officer compensation during 2010 consisted of the following companies in the mortgage related, outsourcing and fleet management industries, where our revenues were between the median and 75th percentile of the peer group:

 

 

In the fourth quarter of 2010, in connection with making 2011 compensation decisions, the Human Capital and Compensation Committee conducted its annual review of the peer group, and determined that it could be further refined to better reflect market changes, our ongoing business transformation and size, and our search for executive talent beyond our traditional competitors. The lack of any companies that precisely meet our profile as a provider of mortgage and fleet management services, and the fact that many of the competitors in each of our business segments are divisions of much larger organizations, or are privately-held, complicated the peer group development. Working with PwC, the Human Capital and Compensation Committee identified 8 additional organizations with whom we may compete for executive talent, business and/or capital in the broader financial services, fleet services, and

outsourcing industries, considering our revenue size. Our revenue is between the median and 75th percentile of the following revised peer group (the “Peer Group”):

 

 

The Human Capital and Compensation Committee also asked PwC to provide data from multiple national compensation databases (the “Survey Data”) in order to assist in the compensation evaluation due to the unique nature of our business units and the lack of peer companies with a similar business unit mix for comparison.

 

The Human Capital and Compensation Committee evaluated the base salary, short-term and long-term incentives and actual and target total compensation levels, as well as shareholder dilution levels, for the Peer Group and Survey Data, including the median and percentile ranges for each compensation component, for comparison with that of our Named Executive Officers. The Human Capital and Compensation Committee also compared the performance of the Peer Group companies on various value creation metrics to our performance to understand the relative pay-for-performance relationship of our compensation programs. Based on the compensation, dilution, and performance review, the Human Capital and Compensation Committee determined that for 2010, total executive compensation for our Named Executive Officers should incent them to achieve above-market performance by paying them commensurate with that performance. The Human Capital and Compensation Committee will consider this compensation philosophy in 2011 and may adjust target total compensation levels as well as base salary, short-term and long-term incentives of our executive officers based upon how they advance sustainable stockholder value creation.

 

2010 Executive Compensation Program Design

 

Components of Executive Compensation.  The primary potential components of the executive compensation arrangements for our Named Executive Officers are base salaries, variable annual compensation programs and long-term incentive awards.

 

Base Salaries.  The Human Capital and Compensation Committee is responsible for determining the base salary of our Chief Executive Officer and other Named Executive Officers, which includes the review and approval of annual adjustments to their base salaries. Base salaries are intended to provide a level of cash compensation that is externally competitive in relation to the responsibilities of the executive’s position in order to attract and retain executive talent.

 

During 2010, the Human Capital and Compensation Committee evaluated salary levels based upon competitive compensation levels for companies in the Peer Group, as well as consideration of the nature of each executive officer’s position and the contribution, achievement, experience and tenure of each executive officer. No market-based compensation adjustments were made to the compensation for the Named Executive Officers, due to the challenging business environment at the time.

 

The following table sets forth the annualized base salaries for our Named Executive Officers for 2010:

 

 

 

 

Variable Annual Cash Compensation Programs.  In 2010, our Named Executive Officers, other executive officers, and certain other employees were eligible for additional cash compensation through participation in our annual cash-based Management Incentive Plan (“MIP”). We moved to one company-wide annual cash incentive plan for 2010, rather than the individual business unit based plans that had been in effect for 2009, in order to focus all employees on the same key objective. Under the MIP, each employee was eligible for a target payout based on our achieving a target performance objective, and the employee achieving all of his or her MBOs. Performance above or below the target performance goal would increase or decrease employees’ payout eligibility.

 

Our MIP performance metric for 2010 was Core Earnings (Pre-Tax). The 2010 performance targets and relative payout percentages that MIP participants would be eligible for were as follows:

 

 

In order to tie a greater percentage of each executive officer’s compensation to the achievement of our annual performance objective, our executive officers’ target award amounts as a percentage of their base salaries were based on each such executive officer’s duties and responsibilities, with greater target payouts as a percentage of base salary for executive officers with greater duties and responsibilities.

 

The Human Capital and Compensation Committee set the performance targets under the 2010 MIP at levels that were consistent with our business plan and that were considered to be challenging based on historical performance as well as industry and market conditions, and then adjusted actual payouts based on the achievement of individual MBOs consistent with supporting our overall strategy, and operational expectations. Individual MBOs were set based on the critical responsibilities for each position, and their need to drive overall shareholder value creation. Each Named Executive Officer had financial (including transformation and Core Earnings (Pre-Tax)), risk and talent based MBOs.

 

Our 2010 Core Earnings (Pre-Tax) of $289 million increased approximately 20% over 2009, compared to our targeted performance goal of $292 million. Consistent with the 2010 MIP design, the Human Capital and Compensation Committee determined that participants would be eligible for a potential payout of 75% of their individual target award amounts.

 

Individual MBOs were then reviewed.  The process began with each individual preparing a self-assessment of his or her performance against their respective MBOs. Individuals’ managers, our Human Resources personnel, and then our Chief Executive Officer reviewed those assessments, and developed recommendations for relative MBO performance. Our Chief Executive Officer presented those recommendations for a defined group of senior executives, including the Named Executive Officers, to the Human Capital and Compensation Committee, which determined their final relative performance against their MBOs. Our Chief Executive Officer approved the final relative performance for all other MIP participants. The Human Capital and Compensation Committee reviewed our Chief Executive Officer’s self-assessment, and made a recommendation to the full Board relating to our Chief Executive Officer’s relative MBO performance. Individual executives’ payouts were reduced to the extent they did not meet all of their respective MBOs. Our Chief Executive Officer has the ability to recommend, and the Human Capital and Compensation Committee has the ability to approve, discretionary incentive awards. No such awards were recommended or approved for 2010.

Due in part to the Core Earnings (Pre-Tax) targeted performance level not being met, which impacted the MBO achievement of our Named Executive Officers, our Named Executive Officers received below target MIP payouts for 2010 as reflected in the following table:

 

 

 

Variable Annual Long-Term Incentive Awards.  The Human Capital and Compensation Committee administers the 2005 Equity and Incentive Plan, which provides for equity-based awards, including RSUs and options to purchase our common stock (“Stock Options”). The Human Capital and Compensation Committee considers equity-based awards to our Named Executive Officers an appropriate and effective method of retaining key management employees and aligning their interests with the interests of our stockholders. Eligibility for equity-based awards, the number of shares underlying each award and the terms and conditions of each award are determined by the Human Capital and Compensation Committee upon consultation with our management and the Human Capital and Compensation Committee’s compensation consultant.

 

In 2009, the Compensation Committee (the predecessor of the Human Capital and Compensation Committee) changed the long-term incentive plan to move away from performance-accelerated RSUs to a mix of (1) premium-priced Stock Options, and (2) performance-vested RSUs, for its awards under the 2005 Equity and Incentive Plan. Our use of premium-priced stock options in 2009 was a direct consequence of the turbulence in the capital markets, and the resulting reduction in our share price. The Human Capital and Compensation Committee did not make long-term incentive grants in 2010, while we underwent significant transformation in our people and processes. The Human Capital and Compensation Committee will determine whether to approve a new long-term incentive program in 2011, and whether to make grants under that program, in order to align executives with stockholder interests. Our Named Executive Officers that remain employed with us will continue to see their wealth accumulation aligned with our stockholders’ interests through their holdings of previously granted equity-based awards. Mr. Hayden received a sign-on equity grant in connection with his being hired.

 

Consistent with the Human Capital and Compensation Committee’s focus on profitable growth on an ongoing basis and consistent with the Human Capital and Compensation Committee’s commitment to stockholders, the Human Capital and Compensation Committee set the 2010 vesting acceleration performance metric for the RSUs granted in 2008 based on Core Earnings (Pre-Tax). Core Earnings (Pre-Tax) is based on pre-tax income after non-controlling interest adjusted for the effects of the following special items: (a) the pre-tax change in the fair value of mortgage servicing rights due to changes in market inputs or assumptions used in the valuation model and (b) the pre-tax change in the fair value of mortgage service rights primarily due to changes in estimated portfolio delinquencies and foreclosures. Any 2008 RSUs for which the vesting has not been accelerated following the conclusion of the 2010 performance period will vest ratably in 2012 and 2013 subject to the employee’s continued employment with us throughout such period, with the exception of our former Chief Executive Officer, Mr. Terence

W. Edwards, whose unvested 2008 RSUs will become fully vested at the end of his two year severance period notwithstanding that he is no longer employed by us as previously disclosed.

 

2011 Executive Compensation Decision-making

 

Base Salaries.  During 2011, the Human Capital and Compensation Committee evaluated salary levels based upon market-competitive compensation levels, as well as consideration of the nature of each executive officer’s position and the contribution, achievement, experience and tenure of each executive officer. No market-based or other compensation adjustments were made to the compensation for the Named Executive Officers for 2011, based on the challenging business environment.

 

2011 Management Incentive Plan.  The Human Capital and Compensation Committee approved the use of Core Earnings (Pre-Tax) for the 2011 MIP. Above-target performance will result in commensurately greater payouts, and below-target performance will result in commensurately lower payouts. In addition, all participants will have MBOs tied to our key operational and strategic objectives, and will need to meet all their MBOs to receive their full MIP target award amount. The Human Capital and Compensation Committee intends to implement “clawbacks” in the design of our compensation programs as SEC rulemaking in this area becomes clearer, however, the use of MBOs acts to focus MIP participants on sustainable profitable growth. The Human Capital and Compensation Committee retains the right to exercise its judgment and provide cash incentive awards for performance that creates profitable growth that is not otherwise captured by the MIP.

 

Long-Term Incentive Awards.  The Human Capital and Compensation Committee has asked management to develop recommendations for an integrated executive compensation program in 2011. The Human Capital and Compensation Committee will determine whether it will make long-term incentive awards in 2011, and the nature and amount of those awards. The Human Capital and Compensation Committee will consider the use of deferrals and “clawbacks” as appropriate in the long-term incentive plan design.

 

Retirement Benefits

 

Messrs. Kilroy and Brown are participants in the PHH Corporation Pension Plan, which is a defined benefit pension plan that was available to all of our employees prior to 2005. The benefits payable under the PHH Corporation Pension Plan have been frozen for Messrs. Kilroy and Brown and the other plan participants. See “— Pension Benefits” for more information regarding benefits available to Messrs. Kilroy and Brown under this plan. In addition, all of our Named Executive Officers are eligible to participate in the PHH Corporation Employee Savings Plan (the “PHH Savings Plan”) on the same basis as other employees during the term of their employment. The PHH Savings Plan is a tax-qualified retirement savings plan that provides for employee contributions made on a pre-tax basis and matching contributions based on a portion of the employee’s compensation contributed to the PHH Savings Plan up to the statutory limit. The matching contribution percentage under the PHH Savings Plan was reduced effective January 1, 2009, from 6% to 4% of the employee’s compensation contributed to the PHH Savings Plan up to the statutory limit, in order to come closer to market practice of 3%. See “All Other Compensation” in Footnote 6 under “— Summary Compensation Table” for more information regarding matching contributions to the PHH Savings Plan made on behalf of each Named Executive Officer.

 

Perquisites and Other Compensation

 

We provide only a limited number of perquisites to our Named Executive Officers. Our Named Executive Officers generally are provided with or have use of company vehicles, financial planning services and tax reimbursements on the foregoing perquisites. Considering our fleet management business, the provision of vehicles to our Named Executive Officers is considered an appropriate perquisite. The Human Capital and Compensation Committee may review the appropriateness of these perquisites in 2011. Each of our Named Executive Officers also are entitled to participate in various employee benefit plans available generally to all employees on a non-discriminatory basis. In addition, during 2010, Mr. Selitto and Mr. Hayden received certain relocation related benefits and associated tax reimbursements in connection with their respective relocations. Effective April 21, 2011, we eliminated on a prospective basis tax reimbursements on perquisites to our executive officers other than tax reimbursements in respect of relocation related benefits pursuant to our relocation policies.

Change in Control and Other Severance Arrangements

 

We maintain a general severance program for its executives and other employees. Except for Mr. Selitto, whose employment agreement contains severance provisions, no employee has a special severance agreement. See “— Potential Payments upon Termination of Employment or Change in Control” below for additional information relating to Mr. Selitto’s severance provisions. Under the 2005 Equity and Incentive Plan, unvested equity-based awards generally will become fully and immediately vested and, in the case of stock options, exercisable, upon the occurrence of a change in control transaction (as defined in the 2005 Equity and Incentive Plan). See “— Potential Payments upon Termination of Employment or Change in Control” below for additional information regarding payments in the event of a change in control or other termination of employment for each Named Executive Officer.

 

During 2010, we entered into a Separation Agreement with Mr. Danahy. We obtained a non-competition and non-solicitation agreement from Mr. Danahy (in addition to other restrictive covenants) that will run for 13 months until June 30, 2011. In exchange for these covenants, we agreed to provide Mr. Danahy with various severance and related benefits as previously disclosed.

 

Deductibility of Executive Compensation

 

In accordance with Section 162(m) of the Internal Revenue Code, the deductibility for federal corporate income tax purposes of compensation paid to certain of our executive officers in excess of $1 million in any year may be restricted. The Human Capital and Compensation Committee believes that it is in the best interests of our stockholders to provide tax-deductible compensation when consistent with meeting our key strategic and operational goals and objectives. Accordingly, where it is deemed necessary and in our best interests to attract and retain the best possible executive talent and to motivate such executives to achieve the goals inherent in our business strategy, the Human Capital and Compensation Committee may approve compensation to executive officers that may exceed the limits of deductibility imposed by Section 162(m). The 2010 and 2011 Management Incentive Plans were specifically designed, approved and implemented for favorable tax treatment under Section 162(m). The Human Capital and Compensation Committee retains the ability to exercise its judgment to make awards that it believes are in the best interests of shareholders, even if those awards do not result in favorable tax treatment.

 

Our management, with the assistance of the Human Capital and Compensation Committee’s compensation consultant, conducted a risk assessment of our compensation programs to determine whether such programs are reasonably likely to have a material adverse effect on us. The risk assessment determined that our compensation programs do not encourage excessive or unnecessary risk-taking and are not reasonably likely to have a material adverse effect on us. While risk-taking is a necessary part of profitable growth, the Human Capital and Compensation Committee has focused on aligning our compensation policies with our long-term interests of and avoiding short-term rewards for management decisions that could pose long-term risks to us, as follows:

 

 

Additionally, we hired a Chief Risk Officer in 2010, whose responsibilities include understanding the risks posed by our operations and processes, including our compensation programs. Our Chief Risk Officer’s input is

expressly solicited when changes to our compensation programs are being considered. Further, the Human Capital and Compensation Committee consults with the Board’s Audit Committee and Finance and Risk Management Committee around compensation and risk.

 

In sum, our compensation programs are structured so that a considerable amount of wealth of our executives is tied to our long-term health, which encourages risk oversight. Our compensation programs avoid the type of disproportionately large short-term incentives that could encourage executives and other employees to take risks that may not be in our long-term interests, explicitly include risk management in the individual objectives of executives and other key employees to align them with incentive payouts, and provide incentives to manage for long-term performance. The Human Capital and Compensation Committee believes this combination of factors encourages our executives and other employees to manage our businesses in a prudent manner.

 

The Human Capital and Compensation Committee is currently comprised of Messrs. Loren and Brinkley and Ms. Reif. During 2010, Mr. Gregory J. Parseghian and Ms. Ann D. Logan, a former director, served on the Human Capital and Compensation Committee for part of the year. Throughout 2010, the Human Capital and Compensation Committee consisted entirely of “outside directors” within the meaning of the regulations under Section 162(m) of the Internal Revenue Code of 1986, as amended, “non-employee directors” under SEC Rule 16b-3, and “independent” directors as affirmatively determined by the Board pursuant to the NYSE Listing Standards and our categorical Independence Standards. The current members of the Human Capital and Compensation Committee are the individuals named as signatories to the Compensation Committee Report set forth above under “Compensation Committee Report.” None of the individuals that served on the Human Capital and Compensation Committee during 2010 and none of the current members of the Human Capital and Compensation Committee are former officers or employees of the Company.

 

The information below sets forth the compensation awarded to, earned by or paid to our “named executive officers” as defined in Item 402 of Regulation S-K (collectively referred to as our “Named Executive Officers”). The form and amount of the compensation awarded to, earned by or paid to our Named Executive Officers for the year ended December 31, 2010, was determined by the Human Capital and Compensation Committee of our Board. The 2008 amounts included in the “Stock Awards,” “Option Awards” and “Total” columns in the table below have been restated from amounts reported in years prior to 2010 in accordance with SEC rule changes. Specifically, the 2008 amounts reported in the “Stock Awards” and “Option Awards” columns now reflect the aggregate grant date fair value of equity-based compensation awards made during 2008, as opposed to the amount of equity-based compensation expense recognized by us during 2008, and the amounts in the “Total” column for 2008 have been correspondingly adjusted. Accordingly, the 2008 amounts in the “Stock Awards,” “Option Awards” and “Total” columns are not comparable to 2008 amounts reported in years prior to 2010.

 

 

 

 

All Other Compensation

 

 

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During 2010, we entered into a Separation Agreement with Mr. Danahy (the “Danahy Separation Agreement”). Pursuant to the Danahy Separation Agreement, Mr. Danahy’s unvested equity awards were modified to generally permit Mr. Danahy to continue to vest in such awards through June 30, 2011. Absent such modifications,

such awards would have been forfeited. Included in the “Stock Awards” column of the Summary Compensation Table for Mr. Danahy for 2010 is $436,701 representing the incremental grant date fair value attributable to the modification of Mr. Danahy’s unvested RSU awards. Included in the “Option Awards” column of the Summary Compensation Table for Mr. Danahy for 2010 is $392,660 representing the incremental grant date fair value attributable to the modification of Mr. Danahy’s unvested Stock Option awards. See “— Grants of Plan-Based Awards During 2010” below for further information concerning the modification of Mr. Danahy’s unvested equity-based awards.

 

During 2010, we provided certain relocation benefits and related tax gross-up payments to Messrs. Selitto and Hayden in connection with their relocations to the Greater Philadelphia region as a term of their employment. Such amounts are included in the “All Other Compensation” column of the Summary Compensation Table for 2010 for Messrs. Selitto and Hayden. See also Footnote 6 to the Summary Compensation Table above for additional details.

 

The following table sets forth the grants of plan-based awards made during 2010 or deemed made during 2010 due to modifications during 2010 of awards made prior to 2010:

 

 

 

 

On March 25, 2009, Mr. Danahy was awarded performance units representing 15,000 shares at the target level of achievement (the “2009 Performance Units”) and 34,662 non-qualified stock options (the “2009 Stock Options”). On August 4, 2010, Mr. Danahy’s 2009 Performance Units were forfeited and one-third of Mr. Danahy’s 2009 Stock Options were forfeited. The remaining unvested portion of Mr. Danahy’s 2009 Stock Options, as well as Mr. Danahy’s other outstanding unvested equity-based awards that were initially granted prior to 2010, were modified pursuant to the Danahy Separation Agreement to avoid the forfeiture by Mr. Danahy of such 2009 Stock Options and other unvested equity-based awards in connection with his separation of employment. The number of 2009 Stock Options indicated in the Grants of Plan-Based Awards During 2010 table above for Mr. Danahy reflects one-third of the number of 2009 Stock Options that were originally granted to Mr. Danahy on March 25, 2009, and that were subsequently modified on August 4, 2010, and, as such, were deemed to be re-granted as of August 4, 2010. The incremental grant date fair value of $73,368 that is attributable to the modification on August 4, 2010, of the modified 2009 Stock Options is included in the “Grant Date Fair Value of Stock and Option Awards” column of the Grant of Plan-Based Awards table above and is also included in the “Option Awards” column of the Summary Compensation Table above for Mr. Danahy for 2010. Similarly, the incremental grant date fair value of $319,293

that is attributable to the modification on August 4, 2010, of Mr. Danahy’s other outstanding unvested stock option awards that were initially granted prior to 2010 is included in the “Grant Date Fair Value of Stock and Option Awards” column of the Grant of Plan-Based Awards table above and is also included in the “Option Awards” column of the Summary Compensation Table above for Mr. Danahy for 2010. Lastly, the incremental grant date fair value of $436,701 that is attributable to the modification on August 4, 2010, of each of Mr. Danahy’s other outstanding unvested RSU awards that were initially granted prior to 2010 is included in the “Grant Date Fair Value of Stock and Option Awards” column of the Grant of Plan-Based Awards table above and is also included in the “Stock Awards” of the Summary Compensation Table above for Mr. Danahy for 2010. See also “— Summary Compensation Table” above and the narrative disclosure immediately following the Summary Compensation Table for additional information.

 

The following table sets forth the outstanding equity awards for each of our Named Executive Officers as of December 31, 2010: