Total Compensation for REIT Executives Increased 13% in 2010, Says FTI Consulting, Inc

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New REIT Executive Comp Study Says Total Compensation Increases Were Consistent Among All REIT Officers

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During 2010, executive compensation continued to attract significant shareholder and media scrutiny, particularly in light of the new say-on-pay rules.

In contrast with previous years when REIT CEOs’ total compensation typically experienced more significant adjustments as compared with other executives, in 2010, adjustments in total compensation amounts were consistent across the board, with increases of 13% at the median but ranged from increases of 2% to more than 30%, according to a just-released study of REIT executive compensation trends. The Real Estate Solutions industry group of FTI Consulting conducted the study of 117 REITS across all sectors of the real estate industry in June 2011.

Specifically, total compensation for REIT CEOs increased at the median by 14% but ranged from flat to increases of more than 32%, which was consistent with the broader group of REIT executives. This is compared with total compensation for REIT CFOs, which increased at the median by 14%, and total compensation for all other executive officers, which increased at the median by 13%.

In 2010, adjustments were primarily driven by increases in annual cash bonuses of 21% at the median over 2009 but ranged from flat to increases of more than 54%. As equity compensation amounts have increased significantly over the past couple of years, the equity component of annual bonuses experienced less significant increases of approximately 9% at the median in 2010, with increases ranging from flat to increases of more than 50%. Additionally, on an aggregate basis, median total compensation for REIT officers has rebounded by approximately 5%-10% above 2007 levels (i.e., pre-recession compensation levels).

According to Anthony Saitta, managing director and co-head of the Real Estate Solutions industry group’s executive compensation team at FTI Consulting, “During 2010, executive compensation continued to attract significant shareholder and media scrutiny, particularly in light of the new say-on-pay rules. Additionally, REIT boards and compensation committees had to balance perception concerns with other critical industry factors, such as personnel changes within executive management teams and a number of recent REIT initial public offerings, in determining the most appropriate executive compensation program to attract and retain talent. In many instances, this also resulted in eliminating compensation elements that were viewed unfavorably by institutional shareholder advocacy groups, such as ISS and Glass Lewis, while implementing pay-for-performance programs that reward executives for sustained long-term performance.”

Other key findings of the FTI study were:

  •     While equity compensation increased by approximately 9% at the median, the MSCI US REIT Index gained approximately 29%.
  •     Compensation committees continue to allocate the largest portion of total compensation to equity compensation. For example, the pay mix for CEOs was as follows: base salary — 20%; cash bonus — 27%; equity compensation — 50%; and other miscellaneous — 3%.
  •     While annual bonuses (both cash and equity combined) experienced a median increase of 17%, the median increase for total compensation was only 13%. This was the result of certain fixed compensation components, including annual base salaries, as well as other miscellaneous compensation costs (i.e., 401(k) contributions, insurance premiums, etc.), generally remaining flat over 2009 levels.

“The vast majority of REITs received shareholder approval on their say-on-pay votes in 2011 and by a fairly wide margin,” Saitta added. “In year-end 2010 decision making, REIT boards were mindful of the upcoming votes and made the right call by continuing to tie pay to company performance and by providing the bulk of increases through incentive compensation, whether paid in cash or in equity. As the environment continues to evolve in the new era of say-on-pay, I believe boards will provide executives with the opportunity to earn additional compensation through the implementation of shareholder-friendly, performance-based compensation programs.”

About FTI Consulting

FTI 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 3,700 employees located in 22 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 and restructuring. The company generated $1.4 billion in revenues during fiscal year 2010. More information can be found at http://www.fticonsulting.com

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Nina Dietrich
Nina Dietrich LLC
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