FTI Consulting Study Finds Lower REIT Executive Median Compensation Adjustments in 2015 Compared to Prior Year
2016 REIT Executive Compensation Study Also Reveals 42 Percent of NEOs Received Pay Decreases, Wide Variation in Compensation Levels Depending on REIT Sector
Conducted by the
The study reported that 42 percent of REIT NEOs actually received a pay decrease, often times in REIT sectors that posted negative returns in 2015. The deepest pay decreases were seen by healthcare REIT CEOs at 6.5 percent and mortgage REIT CEOs receiving pay decreases of 14 percent.
The 2016 REIT Executive Compensation study also showed that compensation trends by position varied widely, dropping 4.8 percent among chairmen while rising 9.1 percent among chief operating officers (“COO”), the highest increase among the seven NEO categories surveyed. The study tracked compensation changes across 480 incumbents in the following positions: chairman (-4.8 percent), CEO (+0.8 percent), COO (+9.1 percent), chief financial officer (“CFO”) (+6.0 percent), chief investment officer (“CIO”) (+7.5 percent), general counsel (+2.5 percent) and other executives (+1.3 percent).
Pay adjustments in 2015 resulted largely from changes in annual cash incentive payouts. Long-term incentive (“LTI”) values remained largely unchanged from 2014 levels, the study revealed.
Performance-based equity increased slightly year-over-year. Approximately 82 percent of REITs granted such compensation in 2015, up from 79 percent in 2014. The study reported that for REIT CEOs, approximately 48 percent of equity was allocated to performance shares in 2014, based on grant date fair value (“GDFV”).
“This equity allocation is in line with continued board sensitivity to total shareholder return (“TSR”) and pay-for-performance compensation philosophies,” said
Additional key findings of the 2016 REIT Executive Compensation study include:
- The median annual bonus target for CEOs was
$1 million, which equaled 131 percent of base salary, an increase of 6 percent from 2014.
- Regarding equity compensation, time-vested restricted stock shares with a three-year vesting period are the most common equity vehicle, while the use of stock options continues to decline.
- Approximately 12 percent of REITs utilize post-vesting holding periods, restricting an individual from selling stock awards after the vesting period has elapsed. Proxy advisory firms believe that mandatory holding periods are a form of good compensation governance, providing a mechanism for the recoupment of incentive-based compensation if a clawback policy ever needs to be enforced. In addition, such provisions often result in a reduction of stock-based compensation expense.
- More than half (51 percent) of REITs surveyed increased board compensation, with a median increase of 13 percent. This incidence represents a slight increase from the 46 percent of REITs that increased board compensation in 2014.
- There is a continued bias toward equity in favor of cash in the total compensation mix, breaking down to about 40 percent cash and 60 percent in equity at the median.
- The number of REITs that pay committee member fees continues to increase, with the fee generally equal to 50 percent of the chairperson fee.
“The results of the 2016 REIT Executive Compensation study show continued scrutiny on the part of investors over CEO pay and the organization’s compensation structure,” noted
About the 2016 REIT Executive Compensation Study
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