REITs Reported 13% Median Increase In Executive Officers' Total Compensation In 2009, Says FTI Schonbraun McCann Group

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Just-released study of REIT executive compensation trends by FTI Schonbraun McCann Group (“SMG”) says performance and liquidity position factored into annual cash bonuses.

"Due to the dramatic increases in overall 2009 annual bonuses, absent a sustained economic recovery, 2010 adjustments may level off somewhat but will vary depending on each REIT’s fundamental and market performance along with its liquidity position."

Total compensation for REIT CEOs increased in 2009 by a median of 18%. While a small percentage of study participants decreased total compensation by more than 2%, a majority of those REITs surveyed marked increases in total compensation of up to 50%. Increases were predominantly in the form of bonuses, with 2009 annual bonuses growing 26% at the median over 2008 and ranging from flat at the low end to increases of over 74%. This is according to a just-released study of REIT executive compensation trends by FTI Schonbraun McCann Group (“SMG”), the real estate advisory business of FTI Consulting, Inc., that conducted the study of 117 REITS across all sectors of the real estate industry in June 2010.

Specifically, the SMG study revealed that total compensation for all REIT officers increased at the median by 13% but ranged from decreases of 2% to increases of over 33% Drilling deeper into the changes to the salary/bonus compensation percentages indicated by respondents, the bonus percentage saw further shifts to cash and equity percentages. Annual cash bonuses for REIT officers increased at the median by 3%, with respondents ranging from increases of over 21% to decreases as deep as 12% at REITs with liquidity and operational performance concerns. Meanwhile, the equity component of annual bonuses experienced even more significant increases of approximately 22% at the median, ranging from no-change at the low end to increases of over 77%. However, on an aggregate basis, total compensation for REIT officers remained approximately 5% below 2007 levels at the median.

According to Larry Portal, senior managing director and co-head of SMG’s Executive Compensation practice, “As part of our work with a significant number of the country’s leading REITs for whom we have researched and helped develop executive compensation programs, we saw firsthand that compensation committees and boards of directors considered fundamental performance, as well as the REIT’s current and near-term liquidity position, in determining annual compensation levels and especially cash bonuses. We saw that compensation committees sought to strengthen the shoulder-to-shoulder alignment between executives and shareholders by significantly increasing the use of performance-based equity awards that will only be earned through sustained corporate performance over the next three-to-five years.”

Other key findings of the SMG study were:

  •     Compensation committees generally increased total compensation levels, with the largest impact being on long-term incentive awards, as a result of recovering stock prices and the addition of performance-based equity awards. For example, the median increase for CEOs’ cash bonuses was 2%, while the median increase for CEOs’ equity bonuses was 22%.
  •     While equity compensation increased by approximately 22% at the median, the MSCI US REIT Index gained approximately 33% as compared to changes in 2008 when equity compensation decreased by 30%, while the MSCI US Index decreased by 38%. Equity compensation levels neither increased nor decreased in either year as much as the benchmark industry index.
  •     While annual bonuses for CEOs experienced a median increase of 26%, the median increase for total compensation was only 18%. This was the result of certain fixed compensation components, including annual base salaries, which generally remained flat over 2008 levels, as well as other miscellaneous compensation costs (i.e. 401(k) contributions, insurance premiums, etc.).
  •     Additionally, CFOs’ total compensation had a median increase of 16%; for all other executive officers, total compensation had a median increase of 12%.

“Due to the dramatic increases in overall 2009 annual bonuses, absent a sustained economic recovery, 2010 adjustments may level off somewhat but will vary depending on each REIT’s fundamental and market performance along with its liquidity position. In addition, unless they were able to go back to shareholders this spring, many REITs still have to manage limited share capacity in their equity incentive plans, which may result in smaller equity award grants until an upsizing is approved by shareholders. This could have a significant impact on 2010 compensation levels, as many REITs are rewarding executive teams for value added management and aligning compensation with sustainable growth through the increased utilization of long-term equity performance plans,” Portal said.

About FTI Schonbraun McCann Group

FTI Schonbraun McCann Group (SMG) is a global consulting firm dedicated to creating integrated financial, tax and real estate solutions for clients having underlying value in real estate operations and assets. SMG provides an unsurpassed range of advisory services and represents leading public and private real estate entities including owners/developers, financial institutions, investment banks, opportunity funds, insurance companies, hedge funds, and pension advisors who are challenged by today’s changing market conditions. FTI Schonbraun McCann Group is the real estate advisory business of FTI Consulting, Inc. For more information, visit http://www.smgllp.com.

About FTI Consulting

FTI Consulting, Inc. (NYSE: FCN) 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 3,500 employees located in most major business centers in the world, we work closely with clients every day to anticipate, illuminate, and overcome complex business challenges in areas such as investigations, litigation, mergers and acquisitions, regulatory issues, strategic communications and restructuring. More information can be found at http://www.fticonsulting.com .

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