This proxy statement, together with the proxy, is solicited by and on behalf of the board of directors of Capstead Mortgage Corporation, a Maryland corporation, for use at our annual meeting of stockholders to be held on May 28, 2014 at 8401 North Central Expressway, Suite 220, Dallas, Texas beginning at 1:00 p.m., Central Time. Our board is requesting you to allow your shares to be represented and voted at our annual meeting by the proxies named on the proxy card. “We,” “our,” “us,” and “Capstead” each refers to Capstead Mortgage Corporation. A notice regarding the internet availability of this proxy statement and our 2013 annual report will first be mailed to stockholders on or about April 16, 2014. This proxy statement will be available on our website at that time. See the

“Notice of Electronic Availability of Proxy Materials” section of this proxy statement for more information.

At our annual meeting, action will be taken to elect eight directors to hold office until the next annual meeting and until their successors are elected and qualified; to hold an advisory vote on executive compensation; to approve the 2014 Flexible Incentive Plan; and to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014. In the discretion of the proxy holders, proxies may be voted on any other business that may properly come before the meeting or any adjournment of the meeting.

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “will be,” “will likely continue,” “will likely result,” or words or phrases of similar meaning. Forward-looking statements are based largely on the expectations of our management and are subject to a number of risks and uncertainties including, but not limited to, the following:

In addition to the above considerations, actual results and liquidity are affected by other risks and uncertainties which could cause actual results to be significantly different from those expressed or implied by any forward-looking statements included herein. It is not possible to identify all of the risks, uncertainties and other factors that may affect future results. In light of these risks and uncertainties, the forward-looking events and circumstances discussed herein may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. Forward-looking statements speak only as of the date the statement is made and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, readers of this document are cautioned not to place undue reliance on any forward-looking statements included herein.

The enclosed proxy is solicited by and on behalf of our board. We will bear the expense of soliciting proxies for our annual meeting, including the mailing cost. In addition to solicitation by mail, our officers or a company of our designation may solicit proxies from our stockholders by telephone, e-mail, facsimile or personal interview. Our officers receive no additional compensation for such services.

We intend to request persons holding our common shares in their name or custody, or in the name of a nominee, to send a notice of internet availability of proxy materials to their principals and request authority for the execution of the proxies. We will reimburse such persons for their expense in doing so. We will also use the proxy solicitation services of Georgeson Inc. For such services, we will pay a fee that is not expected to exceed $6,500 plus out-of-pocket expenses.

Our common shares are our only equity securities entitled to general voting rights. Each common share entitles the holder to one vote. As of March 28, 2014, there were 95,767,180 common shares outstanding and entitled to vote for matters

coming before our annual meeting. Only stockholders of record at the close of business on March 28, 2014 are entitled to vote at the meeting or any adjournment of the meeting.

If you hold our common shares in your own name as a holder of record, you may instruct the proxies to vote your shares through any of the following methods:

Our counsel has advised us these three voting methods are permitted under the corporate law of Maryland, the state in which we are incorporated.

The deadline for internet and telephone voting is 11:59 p.m., Central Time, on May 27, 2014. If you prefer, you may bring your proxy to our annual meeting to vote your shares in person.

If a broker, bank or other nominee holds our common shares on your behalf, the voting instructions above do not apply to you. You will receive voting instructions from them.

A quorum will be present at our annual meeting if the holders of a majority of our outstanding shares entitled to vote are present, in person or by proxy. If you have returned valid voting instructions or if you hold your shares in your own name as a holder of record and attend the meeting in person with your proxy, your shares will be counted for the purpose of determining whether there is a quorum. If a quorum is not present, the meeting may be postponed or adjourned until a quorum has been obtained.

The affirmative vote of a majority of all the votes cast at the annual meeting is required to elect each nominee to our board (proposal 1), to consider advisory approval of compensation granted to our named executive officers in 2013 (proposal 2), to approve our 2014 Flexible Incentive Plan (proposal 3), and to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2014 (proposal 4). Unless otherwise required by Maryland or other applicable law, the affirmative vote of a majority of all votes

cast is also required to approve any other matter brought to a vote at the meeting.

Brokers holding shares beneficially owned by their clients do not have the ability to cast votes with respect to any non-routine matter, including the election of our directors (proposal 1), the compensation-related proposal (proposal 2), or approval of our 2014 Flexible Incentive Plan (proposal 3), unless the brokers have received instructions from the beneficial owners of the shares. It is therefore important that you provide instructions to your broker so that your shares will be counted in these matters.

Brokers may vote at their discretion on all routine matters (i.e. the ratification of the appointment of our independent registered public accounting firm). Broker non-votes occur when a broker, bank or other nominee holding common shares on your behalf votes the shares on some matters but not others. We will treat broker non-votes as common shares

present and voting for quorum purposes and votes not cast in any non-routine matter, including proposals 1, 2 and 3.

Abstentions, broker non-votes and withheld votes will have no effect on the outcome of the votes on proposals 1, 2 and 3, assuming that a quorum is obtained.

If you sign and return your proxy card without giving specific voting instructions, your shares will be voted as recommended by our board.

You must meet the same deadline when revoking your proxy as when voting your proxy. See the “Voting” section of this proxy statement for more information. If you hold our common shares in your own name as a holder of record, you may revoke your proxy instructions through any of the following methods:

If our common shares are held on your behalf by a broker, bank or other nominee, you must contact them to receive information on revoking your proxy.

On or about April 16, 2014, we mailed our stockholders a notice with instructions on accessing these materials and voting online as permitted by the Securities and Exchange Commission (“SEC”). If you received a notice, you will not

receive a hard copy of the proxy materials unless you request them. If you would like to receive a hard copy of our proxy materials, follow the instructions on the notice.

SEC rules and Maryland corporate law allow for householding, which is the delivery of a single copy of an annual report and proxy statement, or notice of electronic availability, to any household at which two or more stockholders reside, if it is believed the stockholders are members of the same family. Duplicate mailings are eliminated by allowing stockholders to consent to such elimination or through implied consent if a stockholder does not request continuation of duplicate mailings. Depending upon the practices of your broker, bank or other nominee, you may be required to contact them directly to discontinue duplicate mailings to your household. If

you wish to revoke your consent to householding, you must contact your broker, bank or other nominee. If you hold our common shares in your own name as a holder of record, householding will not apply to you.

Extra copies of our annual report and proxy statement may be obtained free of charge by sending a request to Capstead Mortgage Corporation, Attention: Stockholder Relations, 8401 North Central Expressway, Suite 800, Dallas, Texas, 75225-4404. You can also obtain copies on our website at www.capstead.com or by calling us toll-free at (800) 358-2323, extension 2339.

Voting results will be announced at our annual meeting and a detail of the voting results will be published in a Form 8-K filed with the SEC within four business days of the meeting.

One of the purposes of our annual meeting is to elect eight directors to hold office until the next annual meeting and until their successors have been elected and qualified. In order to understand each nominee’s qualifications to serve as a director, it is important to first review our investment strategy:

“We operate as a self-managed real estate investment trust (“REIT”) for federal income tax purposes and earn income from investing in a leveraged portfolio of residential mortgage pass-through securities consisting almost exclusively of adjustable-rate mortgage securities issued and guaranteed by government-sponsored entities, either Fannie Mae or Freddie Mac, or by an agency of the federal government, Ginnie Mae.”

Set forth below for each director nominee is the name, age, principal occupation, the date elected to our board, board

committee memberships held, the number of common shares beneficially held, directorships held with other public companies and certain other biographical information necessary to provide you with a more complete understanding of the experiences, qualifications, attributes or skills of the nominees.

Also provided below is a brief discussion of our considerations for recommending each of the nominees for director. For discussion of beneficial ownership, see the “Security Ownership of Management and Certain Beneficial Owners” section of this proxy statement. If any nominee becomes unable to stand for election as a director, an event we do not presently expect, the proxy will be voted for a replacement nominee if our board designates one.

Our business and affairs are managed under the direction of our board. Members of our board are kept informed of our business through discussions with our chairman, CEO and other executive officers, by reviewing materials provided to them, and by participating in meetings of our board and its committees.

During the year ended December 31, 2013, our board held four regular meetings and six special meetings. In accordance with our Board of Directors’ Guidelines, directors are expected

to attend all meetings of our board and meetings of committees on which they serve. Each director standing for election attended more than 75 percent of the meetings of our board and committees on which he or she served that were held during the period for which such person was a director.

Section 303A.02 “Independence Tests” of the NYSE Listed Company Manual outlines the requirements for a director to be deemed independent by the NYSE, including the mandate that our board affirmatively determine that each of our directors has no material relationship with us that would impair independence. To assist in ascertaining the independence of our directors, each director completed a qualification questionnaire in December 2013. They were also asked to affirm compliance with all of the independence standards set forth in the NYSE Listed Company Manual and our Board of Directors’ Guidelines. Further, directors were asked to verify their interest in serving on our board in 2014 and their availability and capability to serve, as well as confirm they meet additional qualifications required for continued service as outlined in our Board of Directors’ Guidelines.

After receipt of all completed qualification questionnaires, our governance & nomination committee members were given a copy of each questionnaire, along with information regarding each director’s ownership in our equity securities. The

committee briefed our board on the results of their review, noting that the son of one of our directors went to work for our independent accounting firm in a non-partner position, and in a different city, during 2012 with no involvement with our audit. At the conclusion of this process, our board affirmatively determined no director, with the exception of Mr. Jacobs who is our CEO, has a material relationship with us that would impair his or her independence, and each director meets all of the independence requirements set forth in the NYSE Listed Company Manual and our Board of Directors’ Guidelines. Therefore, our board is comprised of a majority of independent directors, as required in Section 303A.01 “Independent Directors” of the NYSE Listed Company Manual.

Our Board of Directors’ Guidelines are found on our website at www.capstead.com by clicking “Investor Relations,” “Accept” and “Governance Documents.” Any reference to an independent director herein infers compliance with the NYSE independence tests and our Board of Directors’ Guidelines.

At no time during the preceding three years have we made a contribution to a charitable organization where one of our independent directors served as an executive officer.

Our independent directors receive base compensation for their representation on our board at an annualized rate of $40,000 and an annual stock award of 4,000 shares of common stock. The 2013 stock awards will vest in full on April 15, 2014. Our chairman of the board receives an additional $20,000 annually, the chair of our audit committee receives an additional $15,000 annually, and the chairs of our compensation and governance & nomination committees each receive an additional $10,000 annually. Committee members receive $1,000 per committee meeting attended. All of our directors receive reimbursement for travel costs and expenses. Employee directors do not receive compensation for serving on our board.

The board believes a meaningful portion of our independent directors’ total compensation should be paid in the form of equity awards in order to better align these directors’ financial interests to those of our stockholders. Equity awards granted may include (i) stock awards, (ii) option awards or (iii) other incentive-based awards as defined in the Amended and Restated 2004 Flexible Long-Term Incentive Plan and the 2014 Flexible Incentive Plan, if approved at this meeting. Our compensation committee routinely reviews our director compensation structure with our compensation consultant and makes director compensation-related recommendations to our board for approval.

Stock awards granted to our independent directors provide for vesting in equal annual installments over a requisite service period established by our board, typically one year (or less in the case of directors appointed to our board after an annual stockholder meeting). Directors are considered owners of the shares and entitled to vote and receive all dividends and any other distributions declared on the shares prior to vesting. Dividends or other distributions on these shares shall not exceed those available to our common stockholders. Unvested shares cannot be sold, transferred or otherwise disposed of for any purpose other than to us. Unvested shares will revert to us in the event a director leaves us for any reason, including termination of directorship by reason of voluntary or involuntary discharge, disability or retirement, except in the event of a change in control, dissolution or liquidation of Capstead, or death of the grantee, in which case all outstanding unvested shares will automatically vest in full.

Option awards granted to our independent directors provide for vesting in equal annual installments over the requisite service period established by our board, typically one year, and expire at the earliest of (i) ten years after date of grant, (ii) six months, or the remaining term of the option if earlier, after the optionee’s termination of directorship by reason of death, resignation, retirement or disability or (iii) on the date of the optionee’s termination of directorship for cause. No option

awards will vest after the optionee’s termination of directorship for any reason, including voluntary or involuntary discharge, disability or retirement, except in the event of a change in control, dissolution or liquidation of Capstead, or death of the grantee, in which case all outstanding unvested options will

automatically vest in full. Outstanding option awards do not receive dividends prior to exercise and are non-voting. No option awards were granted to directors during the three years ended December 31, 2013.

Our board currently separates the roles of chairman and CEO, with the chairmanship held by an independent director. Our board believes the separation of roles, while not required, enhances the board’s oversight of and independence from management, as well as the ability of our board to carry out its roles and responsibilities on behalf of stockholders. This leadership structure also allows our CEO to focus more of his time and energy on operations while providing him more of an opportunity to learn from the experience and perspectives of our chairman and other independent directors.

Our chairman, together with our CEO and with input from our other directors, oversees the development of board and board committee calendars and meeting agendas. He or she also leads the discussion at board meetings, and acts as the primary liaison between our CEO and board. Our chairman is available to speak on behalf of our board under certain circumstances and performs other functions and responsibilities as required under our Board of Directors’ Guidelines or as directed by the board from time to time.

Our board recognizes how critical effective risk oversight is in our success and believes that its current leadership structure and operating style, with a board composed of primarily independent directors, its chairmanship separated from our CEO, and experienced executive officers who participate regularly in board and audit committee meetings, enhances risk oversight. Enterprise risks are identified and prioritized by our management and reported to our full board on a quarterly basis or as otherwise appropriate, while compliance and

financial risks are overseen by our audit committee. Our compensation committee considers enterprise risks within the design of our compensation programs to ensure these programs do not encourage excessive risk taking. Our chairman and other independent directors, themselves all experienced business professionals, are active in raising enterprise risk issues for board consideration and challenging our management to address their concerns and see their perspective on these issues.

We maintain a standard for ownership of our common stock by our directors and named executive officers for purposes of improving the alignment of interests of these individuals and those of our stockholders. Each of our directors is expected to own shares of our common stock equal to three times their annual cash retainer and each of our executive officers is expected to own shares ranging from three times their annual base salary to up to five times for the CEO. In January 2013 this standard was amended to limit the pledging of our common stock held by our directors and executive officers to not more than 50% of all shares owned and in January 2014

the pledging policy was modified further to limit the number of shares pledged to no more than 50% of our average daily trading volume. For purposes of measuring our stock ownership guidelines, any shares pledged shall be excluded from each executive officer’s or director’s ownership. For a discussion of ownership standards for our executive officers and our new pledging standard, see “Other Compensation Policies and Practices” section of the Compensation Discussion and Analysis (“CD&A”) on page 27 in this proxy statement.

The current standing committees of our board are listed in the table below. Each of these committees has a written charter approved by our board. A copy of the charters can be found on our website at www.capstead.com by clicking “Investor

Relations,” “Accept” and “Committee Charters.” The members of these committees and the number of meetings held during 2013 are identified in the table below, and a description of the principal responsibilities of each committee follows.

Our audit committee is comprised of three independent directors. This committee is responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm; and it provides assistance to our board in fulfilling their oversight responsibilities to our stockholders, potential stockholders and the investment community relating to:

Our board has determined that Ms. Goolsby and Messrs. Keiser and O’Neil are “audit committee financial experts” as defined in the applicable rules and regulations of the Securities Exchange Act of 1934, as amended. All members of our audit committee meet our Board of Directors’ Guidelines for independence of audit committee members, have financial management experience and are financially literate as required by the NYSE Listed Company Manual. Our audit committee charter limits the number of audit committees on which committee members may serve to no more than two other public companies, unless our board determines such simultaneous service would not impair the ability of such member to effectively serve. Ms. Goolsby currently serves on the audit committee for WhiteWave Foods Company.

Our compensation committee is comprised of four independent directors. Our board has determined that Ms. Goolsby and Messrs. Biegler, Keiser and Whiting are independent in accordance with NYSE listing standards and Item 407(a) of the SEC Regulation S-K. In addition to routinely reviewing our director compensation structure with our compensation consultant and making director compensation-related recommendations to our board, all of our executive compensation programs are administered under the direction of this committee. This committee is responsible for overseeing our compensation programs including:

Our executive committee is comprised of three directors. During intervals between meetings of our board, this committee has all of the powers and authority of our board in managing our business and affairs, except those powers that by law cannot be delegated by our board.

Our governance & nomination committee is comprised of three independent directors. This committee is responsible for:

During the fiscal year ended December 31, 2013, Ms. Goolsby and Messrs. Biegler, Keiser and Whiting served on our compensation committee. No member of this committee was at any time during 2013 or at any other time an officer or employee of ours, and no member had any relationship with us requiring disclosure in the “Related Person

Transactions” section of this proxy statement. None of our executive officers has served on the board or compensation committee of any other entity that has or had one or more executive officers who served as a member of our board or compensation committee during 2013.

Non-management directors regularly meet without management in connection with our quarterly board meetings. Accordingly, such directors met four times in 2013. At these meetings, the non-management directors reviewed strategic issues for consideration by our board, including future agendas, the flow of information to directors, management progression and succession, and our corporate governance guidelines. The non-management directors have determined that our chairman will preside at such meetings. The chairman is generally responsible for advising our CEO of decisions reached and suggestions made at these sessions. If non-

management directors include a director who is not an independent director, our Board of Directors’ Guidelines requires that at least one of the scheduled executive sessions include only independent directors. Presently, all of our non-management directors are independent.

Stockholders and interested parties may communicate with the presiding director or non-management directors as a group by utilizing the communication process identified in the “Interested Party and Stockholder Communication with our Board” section of this proxy statement.

Our policies and practices reflect corporate governance initiatives that are compliant with the NYSE listing standards and the corporate governance requirements of the Sarbanes-Oxley Act of 2002. We maintain a corporate governance section on our website which includes key information about our corporate governance initiatives including our Board of Directors’ Guidelines, charters for our board committees, our Code of Business Conduct and Ethics (applicable to all of our employees, officers and directors) and our Financial Code of Professional Conduct. The corporate governance section can be found on our website at www.capstead.com by clicking “Investor Relations,” “Accept” and “Governance Documents.”

Each of our directors should, to the best of his or her ability, perform in good faith the duties of a director and/or a committee member in a manner he or she believes to be in our best interests with the care an ordinarily prudent person in a like position would use under similar circumstances. This duty of care includes the obligation to make, or cause to be made, an inquiry when the circumstances would alert a reasonable director to the need thereof. Our directors are expected to attend, in person or by telephone, all meetings of our board and committees on which they serve, as well as attend in person our annual meeting of stockholders.

Our governance & nomination committee considers and makes recommendations to our board concerning candidates for election and the appropriate size of our board. In considering incumbent directors, the committee reviews the directors’ overall service during their terms, including the number of meetings attended, level of participation and quality of performance. Other considerations include the directors’ level of ownership of our equity securities and, when applicable, the nature of and time involved in the directors’ service on other boards. The committee reviews the completed qualification questionnaires submitted by incumbent directors (as previously described in the “Board Member Independence” section of this proxy statement) prior to making its recommendation to our board regarding the slate of directors for election at the following year’s annual meeting of stockholders.

In considering candidates to fill new positions created by expansion and/or vacancies that occur because of resignation, retirement or any other reason, the committee uses its and our management’s network of contacts to compile a list of potential candidates. The committee may also engage, if it deems appropriate, a professional search firm. Candidates are selected on the basis of talent and experience relevant to our business without regard to race, religion,

gender or national origin as described in our Board of Directors’ Guidelines. Accordingly, our board does not consider diversity in identifying nominees for director in the sense that it is agnostic as to a potential nominee’s characteristics in this regard and does not have any diversity goals or guidelines relative to the overall make-up of our board. Candidates should possess fundamental qualities of intelligence, honesty, perceptiveness, good judgment, maturity, high ethics and standards, integrity, fairness and responsibility. Each candidate should also have a genuine interest in Capstead, recognize that he or she is accountable to our stockholders and have a background that demonstrates an understanding of business and financial affairs and the complexities of a large business organization.

No person shall be eligible to serve as a director who has been convicted of a felony criminal offense or any criminal offense involving moral turpitude, dishonesty or a breach of trust. The committee will consider candidates recommended by stockholders provided stockholders follow the procedures set forth in the “Stockholder Procedures for Director Candidate Recommendations” section of this proxy statement. The committee evaluates a candidate using the criteria set forth above regardless of who nominated the candidate.

Our Board Of Directors’ Guidelines prohibit our directors from serving on more than four boards of other public companies and recommends its audit committee members serve on the audit committee of no more than two other public companies.

In addition, our CEO’s service is limited to two other public company boards. With the exception of Ms. Goolsby who serves on one other public company board, none of our directors presently serve on other public company boards.

Our Board of Directors’ Guidelines require a director to promptly submit a letter of resignation to our governance & nomination committee if the director (i) changes substantially his or her principal occupation or business association for any reason other than retirement or retirement planning, (ii) declares or is otherwise involved in a personal bankruptcy or the bankruptcy of a business in which he or she is a principal, or (iii) is named as a party in a material legal proceeding, becomes the target of a material state or federal investigation, or receives a request of a material nature for the production of records or testimony from any state or federal agency. The committee will in turn consider the resignation and make its recommendation to our board on whether to accept or reject the resignation. Our board, in its sole judgment, shall then decide whether such event requires the board to accept such resignation in the best interests of the company and its stockholders.

In November 2012 our board modified our Bylaws to adopt a majority vote standard in any election of directors which is not a contested election. A nominee for director in an uncontested election shall be elected to our board if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election provided that in the case of a

contested election, directors shall be elected by a plurality of the votes cast. Concurrent with adoption of the majority vote standard in uncontested elections, our board modified our Board of Directors’ Guidelines to require an incumbent director who does not receive a majority of the votes cast and therefore is not re-elected, to promptly submit a letter of resignation to our governance & nomination committee. The committee will in turn consider the resignation and make its recommendation to our board on whether to accept or reject the resignation. Our board, excluding the resigning director, will make a decision regarding the resignation within 90 days after the date on which the certification of the stockholder vote on the election of directors is made, and our Board will publicly disclose its decision and related rationale. If a decision is made to accept the resignation, the director’s resignation shall be effective immediately.

A director who has been convicted of a felony criminal offense or any criminal offense involving moral turpitude, dishonesty or a breach of trust shall resign effective immediately. An employee director must resign from our board, unless a majority of our board determines otherwise, once he or she ceases to be employed by us whether due to retirement or otherwise.

Our governance & nomination committee will consider written director candidate recommendations made by stockholders to our secretary at 8401 North Central Expressway, Suite 800, Dallas, Texas 75225-4404. Electronic or facsimile submissions will not be accepted. For the committee to consider a candidate, submissions must include sufficient information concerning the recommended individual including biographical data such as age; employment history; a description of all businesses that employ or employed the candidate, including the name and phone number of the businesses; a list of board memberships the candidate holds, if any; and additional information that would provide a more complete understanding of the experiences, qualifications, attributes or skills of each director nominee in light of Capstead’s business and structure. In addition, the candidate should affirm he or she can read and understand basic financial statements and consent to stand for election, if nominated by our board, and serve, if elected by our stockholders.

Once a fully complete recommendation is received by the committee, the candidate will be sent a questionnaire that requests additional information regarding independence, qualifications and other information to assist the committee in evaluating him or her, as well as certain information that must be disclosed about the candidate in our proxy statement, if nominated. Further, the questionnaire provides that the individual must grant consent to us to conduct a confidential background search of the individual to the extent allowable under federal, state and local legislation. The recommended candidate must return the questionnaire within the time frame as outlined in the following sentence to be considered for nomination by the committee. Recommendations for which we have received completed questionnaires by December 17, 2014 will be considered for candidacy for the 2015 annual meeting of stockholders. Completed questionnaires received after December 17, 2014 will be considered for candidacy for the 2016 annual meeting, if not earlier withdrawn.

Interested parties and stockholders who wish to contact any of our directors either individually or as a group may do so by calling toll-free (800) 358-2323, by writing to them care of Capstead Mortgage Corporation, 8401 North Central Expressway, Suite 800, Dallas, Texas 75225-4404 or via e-mail at directors@capstead.com. Interested party and

stockholder calls, letters and e-mails are screened by our employees based on criteria established and maintained by our governance & nomination committee, which includes filtering out improper or irrelevant communications such as solicitations, advertisements, spam, surveys, junk mail, mass mailings, resumes and other forms of job inquiries.

Our board and named executive officers conduct a comprehensive orientation through a review of background material and meetings with our executive officers to familiarize new directors with our vision, strategic direction, core values, ethics, financial matters, corporate governance practices and other key policies and practices. Our board recognizes the importance of continuing education for our directors and is committed to providing such education to improve the performance of our board and its committees. Our executive officers assist in identifying and advising our directors about opportunities for continuing education including conferences

provided by independent third parties. Mr. Biegler and Mr. O’Neil attended Stanford University’s Directors’ College in June 2013. Ms. Goolsby attended the NYSE Governance Services Corporate Board Member Compensation Committee Boot Camp in November 2013. Ms. Goolsby and Mr. Jacobs attended the University of Texas at Dallas Corporate Governance Conference in September 2013. In connection with maintaining his license as a certified public accountant, Mr. Jacobs is required to earn at least 120 continuing education credit hours over each three-year period.

Section 303A.09 “Corporate Governance Guidelines” of the NYSE Listed Company Manual requires listed company boards to conduct a self-evaluation at least annually to determine whether it and its committees are functioning effectively. At least once a year we provide each of our directors a self-evaluation questionnaire regarding the performance of our board and one for each of our committees

on which he or she serves. The completed committee questionnaires are given to the respective committee chair to review and discuss during the next scheduled committee meeting. The director who presides at our non-management director meetings receives the board self-evaluation questionnaires to review and discuss with directors at our annual board meeting.

The following table shows the names and ages of our executive officers and the positions held by each individual.

A description of the business experience of each for at least the past five years follows the table.

For a description of Mr. Jacobs’ business experience, see the “Election of Directors” section of this proxy statement.

Mr. Reinsch has served as our executive vice president, CFO and secretary since 2006. Prior thereto, Mr. Reinsch served as our senior vice president, CFO and secretary from 2003 to 2006 and has served in various other executive positions with us since 1993. Mr. Reinsch was employed by Ernst & Young LLP from 1984 to 1993, last serving as an audit senior manager. Mr. Reinsch is a certified public accountant.

Mr. Spears has served as our executive vice president – director of residential mortgage investments since 2006. Prior

thereto, Mr. Spears had served as our senior vice president – asset and liability management since 1999. From 1994 to 1999, he served as our vice president – asset and liability management. Mr. Spears was employed by NationsBanc Mortgage Corporation from 1990 to 1994, last serving as vice president – secondary marketing manager.

Mr. Brown has served as our senior vice president – asset and liability management and treasurer since 2006. Prior thereto, Mr. Brown had served as our vice president – asset and liability management and treasurer since 1999. Mr. Brown has been associated with us since 1994.

The following Compensation Discussion and Analysis provides information relevant to understanding the 2013 compensation of our executive officers identified in the Summary Compensation Table, whom we refer to as our named executive officers or NEOs. The following discussion also contains statements regarding future individual and

company performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We caution investors not to apply these statements in other contexts.

The compensation committee of our board has responsibility for establishing, implementing, and monitoring adherence to our compensation programs and practices. Our compensation philosophy is to provide competitive, performance-based compensation programs to attract, motivate, and retain employees vital to our long-term financial success and the creation of stockholder value.

Response to 2013 Say-on-Pay Vote. In 2013, approximately 68% of the votes cast supported the compensation paid or awarded to our NEOs in 2012. This level of support fell below our expectations. In response, the committee conducted an extensive review of our compensation programs and practices, solicited feedback from investors, and made a number of important changes in 2013 and early 2014. As part of this process, the committee reached out to many of our largest stockholders to engage in a dialogue about our executive compensation program and practices. The committee chairman and other members of the committee participated in discussions with stockholders representing over 30% of our outstanding common stock, soliciting feedback on our current programs as well as changes under consideration. Through this process, the committee determined that the investment community supported our changes made in 2013 and other changes under consideration and viewed them as improvements to our compensation programs.

Key changes include:

Recent Company Performance. We operate as a self-managed REIT and earn income from investing in a leveraged portfolio of residential adjustable-rate mortgage (“ARM”) securities issued and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, referred to as the Agency mortgage securities. We believe our strategy of investing primarily in short-duration, seasoned ARM securities differentiates us from our peers from an interest rate risk perspective and makes us one of the most defensively-positioned mortgage REITs invested primarily in Agency mortgage securities, whom we refer to as our Agency REIT peers. Duration is a common measure of market price sensitivity to interest rate movements and a shorter duration indicates less interest rate risk. Highlights of our 2013 performance include:

2013 Compensation. We believe our financial performance is best measured by the economic returns we deliver to our stockholders over both short- and long-term time horizons. Accordingly, we emphasize pay-for-performance alignment in the design of our compensation programs by linking key compensation elements directly to absolute and relative performance. We believe this is reinforced by policies requiring our NEOs to hold a meaningful financial stake in Capstead. Accordingly, a significant portion of compensation paid to our NEOs is in the form of shares of our common stock, which together with share ownership requirements, provides a significant alignment of interest with our stockholders.

The primary elements of our compensation programs are base salaries, annual incentives and long-term equity-based awards. In total, 74% of our 2013 executive compensation, as measured for proxy statement purposes, was performance-based.

Executive Compensation Practices. Below we highlight certain of our executive compensation and governance policies and practices which we utilize to drive performance and serve our stockholders’ long-term interests:

Our Pay Practices Include

Our Pay Practices Do Not Include

In 2013, approximately 68% of the votes cast supported the compensation paid or awarded our NEOs in 2012. This level of support fell below our expectations. While a majority of stockholders expressed support, the committee believed the vote result warranted a “fresh look” at our executive compensation program design and practices and expanded the committee’s membership to help bring in a new perspective in this effort.

In an effort to ensure we were being responsive to the views of our stockholders, the committee considered feedback received during and after the 2013 proxy vote solicitation process and pursued changes it believed would be responsive to investors’ feedback and in the best interests of our stockholders. The committee elected to adopt certain changes that would affect annual incentive compensation for the second half of 2013. These changes were subsequently reviewed with investors as part of our outreach effort described below, which led to revisions to our annual incentive plan that became effective for 2014.

The chairman and other members of the committee spoke with many of our largest stockholders about our executive compensation programs and practices. These stockholders represented over 30% of our outstanding common stock and included seven of our twenty largest stockholders. Discussions with investors covered a range of topics, including the investors’ perspectives on Capstead’s performance, our 2012 compensation program design, short-term incentive plan changes adopted for the second half of 2013 and their thoughts on further refinements to our programs for 2014. The investment community was very supportive of the program and policy changes. Certain investors expressed a preference for greater emphasis on measures of absolute performance when determining the short-term incentive compensation for the NEOs, rather than solely measuring company performance on a relative basis – a suggestion we incorporated into the 2014 Program. These discussions helped us better understand the views of our stockholders and helped them understand how the committee approached and designed our compensation programs.

In this section we review the various factors influencing the design of our compensation programs and decisions affecting 2013 compensation of the NEOs, including:

Our Philosophy

Our compensation programs are designed to provide competitive, performance-based compensation programs to attract, motivate, and retain employees vital to our long-term financial success and the creation of stockholder value. This pay-for-performance philosophy is the cornerstone of all of our compensation programs. The committee believes that a company’s executive compensation practices are a window through which the outside world, and most importantly stockholders, sees an organization’s priorities.

The committee (assisted by its compensation consultant) has designed and administered compensation programs it believes support this philosophy. In implementing its philosophy, the committee:

The Role of the Committee, Its Consultant and Management in Making Compensation Decisions

Committee. The committee has primary responsibility for determining and approving, on an annual basis, the compensation of our CEO and other NEOs. The committee is advised by an independent compensation consultant to make recommendations with respect to both overall guidelines and specific compensation elements. The committee’s review of individual executive officer compensation includes, but is not limited to, a review of company and individual performance as well as the total value of past compensation, including long-term equity incentive awards.

Members of the committee also participate in the board of directors’ annual CEO performance review and setting of annual performance goals, led by our board chairman. The committee establishes compensation levels for our CEO in consultation with its independent compensation consultant. It should be noted that our CEO neither recommends nor is involved in any discussions regarding his own compensation.

Compensation Consultant. The committee has the sole authority to select, retain, and terminate outside compensation consultants, independent legal counsel or other experts or advisors. Pay Governance LLC has been engaged by our committee to serve as its consultant on executive and director compensation matters since 2010. Pay Governance LLC provides advice and analysis to the committee on the design, structure and level of executive and director compensation, and, when requested by the committee, attends meetings of the committee and participates in executive sessions without members of management present. Pay Governance LLC reports directly to the committee, and the committee reviews, on an annual basis, Pay Governance LLC’s performance and provides Pay Governance LLC with direct feedback.

The committee recognizes that it is essential to receive objective advice from its compensation advisors. To that end, the committee has assessed the independence of Pay Governance LLC pursuant to SEC rules and concluded that Pay Governance LLC’s work for the committee does not raise any conflict of interest.

Role of CEO and Management. While the committee has responsibility to approve and monitor compensation for our NEOs, management plays an important role in the process, providing input into financial goals and providing information to the committee and Pay Governance LLC on our performance and that of our mortgage REIT peers. Our CEO also assists the committee by providing a self-assessment of his own performance, but neither recommends nor is involved in any discussions regarding his own compensation. The CEO also

provides the committee with an assessment of the performance of senior executives (other than himself) and recommends to the committee adjustments to compensation opportunities of those other NEOs. The committee considers those recommendations when making compensation decisions.

Our Use and the Role of Peer Companies

Our investment strategy entails investing in a leveraged portfolio of residential mortgage pass-through securities consisting almost exclusively of Agency ARM securities. Accordingly, many of our investors evaluate us in this context and monitor our performance relative to other mortgage REITs with large portfolios of Agency mortgage securities. We consider these companies to be the most relevant for purposes of benchmarking our performance and our primary competitors for both capital and executive talent. There are a limited number of publicly-traded companies that meet these criteria:

While it is important to consider pay practices and performance of companies with similar investment strategies, there is another segment of our investor base that invests in and evaluates our performance relative to a broader set of mortgage REITs. As a result, during 2013, the committee expanded its perspective to include other types of mortgage REITs which it believes have similar business models and/or would be competitors for capital among a segment of our investor base. The committee also believes these companies would be competitors for the type and quality of executive talent appropriate for Capstead. This group is comprised of all publicly-traded Agency mortgage REITs, most publicly-traded so-called “hybrid mortgage REITs” which have significant investments in both Agency and non-Agency mortgage securities and select other mortgage REITs which do not invest in Agency mortgage securities, but which the committee believes have similar business models and are competitors for both capital and executive talent.

The following companies comprise our mortgage REIT peers (Agency REIT peers also included in this group are italicized):

As discussed further below, the revised annual and long-term incentive plans use both the Agency REIT peers and mortgage REIT peers separately (without regard to their internal vs. external management structure) for purposes of evaluating our relative performance and, ultimately, determining earned compensation under each of these plans.

Differentiating between internally-managed and externally-managed peers is an important distinction when monitoring pay levels:

The committee considers information regarding our peers’ pay levels and practices to establish a point of reference when making compensation decisions. While we seek to establish pay levels that are consistent with market medians, we do not “benchmark” NEO compensation so that it must equal a specified level relative to other companies. Rather, the committee makes decisions regarding pay opportunities it considers appropriate in light of its philosophy and information available from our mortgage REIT peers. The committee believes pay opportunities consistent with market medians are often appropriate; however, the committee may choose to pay above or below market medians when it believes doing so would be appropriate to account for scope of position responsibilities, experience, skills, internal equity and other factors.

Objectives of Our Program

Our stockholders and the broader investment community evaluate performance with particular emphasis on: (i) dividend returns to investors, and (ii) changes in our book value per common share. Together, these two factors comprise the “economic return” we deliver to our stockholders. In addition, we seek to maintain a low-cost and efficient operating platform as part of our business strategy. By managing our operating costs, we are able to deliver a higher economic return to our stockholders.

Our compensation arrangements are designed to prominently feature each of these aspects of our performance:

We believe the structure of our compensation arrangements appropriately incorporates indicators of company performance of significant importance to our stockholders and the broader investment community, helping to ensure proper alignment of management’s interests with those of our stockholders.

Review of 2013 Total Direct Compensation

The committee seeks to provide competitive, performance-based compensation opportunities necessary to attract, motivate, and retain employees vital to our long-term financial success and creation of stockholder value. The committee believes this is best achieved through a combination of pay elements it refers to as total direct compensation, comprised of:

2013 Base Salary

Historically, the committee has made decisions regarding base salaries of the NEOs after completion of the second quarter, with any adjustments effective for the second half of the year. In light of the committee’s undertaking of the overall redesign of its compensation programs, the committee elected to defer any base salary actions until after it had completed its efforts. As a result, the NEOs did not receive base salary adjustments for 2013.

2013 Performance-Based Annual Incentives

The committee believes annual incentives are an important tool to motivate and reward management for delivering strong operational performance and achievement of strategic objectives.

For the first half of 2013 and in prior years, this goal was accomplished through an annual bonus program utilizing a performance-based formula to create a funding guideline and pool, which could be used to distribute awards to our NEOs and other employees. Notwithstanding the formulaic result, the committee retained complete discretion to: (i) determine the amount actually awarded; (ii) allocate any such amount among our NEOs and other employees, and (iii) determine the

form of any such awards (e.g. cash versus equity awards). For the first half of 2013, the annual bonus program was funded under the historical formula:

Prior to termination of this program effective June 30, 2013, the historical funding formula had generated an incentive pool of $474,000 for distribution, of which the committee distributed $299,000 to the NEOs subsequent to the end of the year as follows:

During 2013, the committee modified its approach to annual incentives by adopting the revised 2013 annual incentive plan, which became effective July 1, 2013. Under the revised 2013 annual incentive plan:

Total payout under the revised 2013 annual incentive plan for July through December of 2013 was as follows:

DERs awarded by the committee in prior years remain an important vehicle through which the NEOs are rewarded for delivering returns to stockholders. As a REIT we are required to pay out 90% of our taxable income to stockholders in the form of dividends. DERs represent notional rights, which entitle the holder to cash payments equal to the per share dividend amounts declared on our shares of common stock, thus linking a significant portion of our NEOs’ compensation to our performance.

The table below provides information on the total number of DERs held by each of our NEOs throughout 2013 and the total amount of dividend equivalents earned. No additional DERs were awarded in 2013. All outstanding DERs expire in 2015.

The value of dividend equivalents earned by our NEOs during 2013 was 11% lower than the value earned during 2012, which was directly attributable to lower 2013 dividends in comparison to the prior year.

2013 Performance-Based Long-Term Incentives

The committee believes our NEOs should have an ongoing stake in the long-term success of our business and should have a meaningful portion of their total compensation paid in the form of performance-based equity awards. Accordingly, in 2013 performance-based equity awards represent more than 35% of our NEOs’ target compensation opportunity.

Under the new program adopted by the committee in 2013, all awards are in the form of performance units, which are convertible into shares of our common stock following a three-year performance period, with the amount of the award dependent upon the achievement of the following performance conditions:

In December 2013, each of the NEOs received an award with a target opportunity value equal to approximately 150% of such officer’s base salary effective January 1, 2014, with a maximum payout equal to 200% of the target opportunity. At the end of the performance period, each executive will be entitled to receive all dividends and any other distributions declared from the grant date through the end of the performance period with respect to the number of shares earned, if any. No dividends will be paid on shares that are not earned subject to the performance conditions specified above.

In addition, effective for equity awards granted beginning in December 2013, equity awards contain “double trigger” vesting provisions that provide for accelerated vesting only if there has been (i) a change in control and (ii) an involuntary termination without cause or a voluntary resignation for good reason occurs within two years following the change in control, unless otherwise specifically determined by the committee.

Other 2013 Compensation Elements

Our NEOs participate in our other benefit programs including basic life insurance, accidental death and dismemberment insurance, long-term disability insurance, long-term care insurance, a charitable gift matching program, and a qualified defined contribution retirement plan, or 401(k) plan, each on the same terms offered to other employees.

In addition, we offer the following benefits to our NEOs:

Decisions Affecting Compensation for 2014

In December 2013, the committee approved base salary increases for the NEOs set forth below, which became effective January 1, 2014:

Following further dialogue with stockholders in late 2013, the committee adopted the 2014 annual incentive plan. The 2014 annual incentive plan is similar to the revised 2013 annual incentive plan in most respects, with slight reductions made to the weightings applied to relative economic return and relative operating efficiency (both measured relative to the mortgage REIT peers) and individual objectives. These reduced weightings allowed for the addition of an absolute economic return metric, weighted 15% in the determination of individual awards. The introduction of the absolute economic return metric in 2014 was a direct result of input from certain of our large institutional stockholders.

Stock Ownership Guidelines. To assist with the alignment of the interests of NEOs and stockholders, we have adopted stock ownership guidelines requiring that our NEOs maintain a minimum ownership interest in Capstead, as a percentage of their base salary. The stock ownership requirements are as follows:

Pledging. In January 2013, our board adopted a policy limiting the shares pledged by our NEOs to not more than 50% of all shares owned by such executive. In January 2014, the board added an additional restriction to the pledging policy further limiting the number of shares of our stock pledged by our NEOs to less than 50% of the average daily trading volume of our common stock for the most recent calendar year. For purposes of measuring compliance with our stock ownership guidelines, any shares pledged by an executive officer and any shares that remain subject to vesting requirements are excluded from such NEOs’ ownership calculation. Any executive officer not meeting the minimum ownership threshold is required to retain all shares received from any future bonus paid in shares, vesting of stock awards or exercise of stock options, except that the executive officer may surrender shares to satisfy tax withholding requirements or the share equivalent for the aggregate strike price for an option exercise.

Derivatives Trading and Hedging. In December 2010, the board adopted a policy restricting all employees from entering into transactions to hedge or offset any change in the market value of our common stock. In February 2011, the board extended this policy to also apply to all directors.

Clawback Policy. In December 2010, the committee adopted a policy related to the forfeiture of certain incentive compensation amounts if we are required to prepare and file accounting restatements of certain financial documents. Specifically, the policy requires all NEOs to reimburse us for any annual incentive- or equity-based compensation received in the 12-month period following the first public issuance or filing with the SEC of any financial document subject to restatement if:

Tax Considerations. Internal Revenue Code Section 162(m) generally precludes a publicly-held corporation from a federal income tax deduction for annual compensation in excess of $1 million paid individually to the principal executive officer or any of the three other most highly compensated executive officers who do not hold the title of principal executive officer or principal financial officer. Exceptions are made for, among other things, qualified performance-based compensation. Qualified performance-based compensation means compensation paid solely upon attaining objective performance goals for each individual, provided that (i) performance goals are determined by a committee consisting solely of two or more outside directors, (ii) material terms of the performance-based compensation programs and performance goals are disclosed to and approved by stockholders at least every five years, and (iii) the committee certifies that the performance goals were attained and other material terms were satisfied prior to any payment. While the committee designs certain components of executive compensation to preserve income tax deductibility, it believes that it is not in the stockholders’ interest to restrict the committee’s discretion and flexibility in developing appropriate compensation programs and establishing compensation levels. Consequently, the committee may approve compensation that is not fully deductible.

The committee has reviewed and discussed the above disclosure with our NEOs, and based on this review and discussion recommended to our board that the above

Compensation Discussion and Analysis be included in this proxy statement.

Compensation for our executives is administered under the direction of our compensation committee. The Summary Compensation Table below shows certain compensation information for our CEO, CFO and two other most highly

compensated executive officers for services rendered in all capacities during the three years ended December 31, 2013. We have no other executive officers.