FTI Consulting Study Finds Lower REIT Executive Median Compensation Adjustments in 2015 Compared to Prior Year
September 22 2016 - 7:30AM
FTI Consulting, Inc. (NYSE:FCN), the global business advisory firm
dedicated to helping organizations protect and enhance their
enterprise value, has found a somewhat muted increase in real
estate investment trust (“REIT”) executive compensation levels
compared to 2014, with a substantial percentage of named executive
officers (“NEOs”) even receiving pay decreases in 2015. These
findings were revealed in the firm’s 2016 REIT Executive
Compensation study, which focuses on the pay practices at the
nation’s largest 125 REITs.
Conducted by the Real Estate & Infrastructure group at FTI
Consulting, the study found that total compensation level increases
for REIT executives in 2015 ranged from 1 to 9 percent depending on
the position, with overall median increases of approximately 3
percent. This median figure reflected a decline from individual
NEOs’ increases in 2014, which were 7 to 11 percent at the median.
The compensation adjustment figures vary widely when separated by
industry sector, with industrial REIT chief executive officers
(“CEOs”) receiving the largest increase at 18 percent, followed by
office REIT CEOs increasing by 13 percent at the median.
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 Larry Portal,
Co-Head of the Executive Compensation & Corporate Governance
practice and a Senior Managing Director in the Real Estate &
Infrastructure group at FTI Consulting. “REITs aim to structure an
equity compensation plan that balances retention through
time-vested stock grants and motivating management to increase
shareholder value with performance shares generally earned
contingent upon TSR performance.”
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 Katie Gaynor, Co-Head
of the Executive Compensation & Corporate Governance practice
and a Managing Director in the Real Estate & Infrastructure
group at FTI Consulting. “In prior years, the focus of investors
and proxy advisory firms was largely directed at plan design.
However, during the last proxy season, there was a notable increase
in the comments from investors and proxy advisory firms on the
goal-setting process. Shareholders are seeking more transparency
around incentive plan payouts and the rigor of performance
goals.”
About the 2016 REIT Executive Compensation
StudyFTI Consulting reviewed and analyzed
compensation-related disclosure in the 2016 proxy statements for
the top 125 REITs based on year-end 2015 enterprise values. They
exclude externally managed companies that do not directly pay cash
compensation to their named executive officers and also excludes
any initial public offerings and REIT conversions or spinoffs that
were completed after June 30, 2015. FTI Consulting generally uses
the median (as opposed to the average) as the preferred statistical
measure for evaluating compensation data trends. The top 125 REITs
have been adjusted to include select hotel companies that have not
elected to qualify for REIT status for tax purposes, but whose
operations are comparable to other hotel REITs. Download the
report.
About FTI ConsultingFTI Consulting, Inc. is a
global business advisory firm dedicated to helping organizations
protect and enhance enterprise value in an increasingly complex
legal, regulatory and economic environment. With more than 4,600
employees located in 28 countries, FTI Consulting professionals
work closely with clients to anticipate, illuminate and overcome
complex business challenges in areas such as investigations,
litigation, mergers and acquisitions, regulatory issues, reputation
management, strategic communications and restructuring. The Company
generated $1.78 billion in revenues during fiscal year 2015. For
more information, visit www.fticonsulting.com and connect with us
on Twitter (@FTIConsulting), Facebook and LinkedIn.
FTI Consulting, Inc.
1101 K Street NW
Washington, DC 20005
+1.202.312.9100
Investor Contact:
Mollie Hawkes
+1.617.747.1791
mollie.hawkes@fticonsulting.com
Media Contact:
Nina Dietrich
+1.201.493.8944
nina@ninadietrich.com
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