Reports publicizing the generous compensation packages that publicly held U.S. companies bestowed upon their chief executives last year have been rolling in, showing that wage stagnation hasn't affected the corner offices of corporate America. The Equilar study published by The New York Times in the spring noted that the median pay for CEOs increased by a healthy 9% from 2012.

But, in this ranking – as well as a more recent CEO pay report by The Wall Street Journal – not one mortgage REIT is listed. This is due to the absence of the largest mREIT, Annaly Capital Management, (NYSE:NLY), which no longer reports earnings for its executives as it did before last year.

A newly minted management style
Beginning in July of last year, Annaly changed from an internally managed company into an externally managed one. After 16 years of being managed internally, the company asked shareholders at its 2013 annual meeting to change the paradigm, promising savings of nearly $211 million over five years' time.

At the time, Annaly noted that many other mREITs were managed this way. Much like those other trusts, such as American Capital Agency, the outside manager would be made up of none other than Annaly executives themselves.

Interestingly, some of the savings mentioned earlier were to be realized by the very act of paying the company's officers though a third party, which would be categorized as a new tax deduction.

Criticism over pay levels?
Prior to 2013, however, compensation was quite generous at Annaly. After her ascending to the position of CEO following the death of co-founder Mike Farrell, Wellington Denahan was featured last fall as the third-highest paid female CEO for 2012, with total compensation of $25.8 million. 

High pay levels at Annaly had been the subject of discussion before. Farrell's compensation for 2011 and 2012 were well over $30 million, with bonuses making up the lion's share of the yearly package. Denahan's pay is fashioned in much the same way: Her 2012 compensation contained, like Farrell's before her, only a $3 million salary – the rest was almost entirely made up of bonuses. 

But Farrell's high rate of pay wasn't irking shareholders, probably because of the juicy returns investors had scored since Annaly went public in 1997. Since then, mREITs have had a rougher road to traverse. For 2013, Denahan-Norris' first full year as CEO, mortgage REITs turned in a fairly dismal performance – registering a return of minus 12%, coming in among the bottom of all REITs.

This change in fortunes may account for rumblings among shareholders, not all of whom were happy about the change, or the compensation levels of Annaly's executives. Shortly after the management move was put into effect, a stockholder filed suit against Annaly in an effort to revoke the change. The "say on pay" vote last year turned out to be an embarrassment as well, with only 28% of shareholders approving of executive pay levels. 

Observable changes are not very positive
So far, the only observable difference to come from the change in management technique is that Annaly no longer reports its executive compensation. The millions of dollars the shift was supposed to save won't completely play out for another four years, and, though the company's stock has risen nearly 15% in 2014, American Capital Agency's has, too – by 21%.

The idea that the external management scenario would enable Annaly to retain talent hasn't worked out very well, either. By mid-February of this year, three longtime executives had either declined to be reelected to the company's board of directors, or turned in their 30-day notice.

Do shareholders have a right to be concerned? It seems so. Instead of making a change that actually benefited investors, it looks like Annaly merely took on the concerns regarding compensation levels by hiding the issue from view. With short-term rates expected to rise within the year, tough times for the sector are lurking just around the corner. If investor returns diminish, there's a good chance that the question of bonuses at Annaly will come up again, very soon.