Total Compensation for REIT Executives Increased by an Average of 7% in 2011, Says FTI Consulting

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Just-Released REIT Executive Comp Study Says Total Compensation Increases Were Higher for Lower Level Executives as Compared to C-Suite Execs

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“Compensation Committees have aimed to implement bonus programs that are transparent and provide shareholders with a clear understanding of what an executive’s bonus payment may be depending on the company’s performance, including a maximum amount.”

Total compensation levels for REIT executives increased in 2011 over 2010 levels, with actual increases ranging from 5% to 10% at the median and an average of 7%. However, the gap in total median compensation increases between C-suite executives and all other senior executives was noteworthy, according to a just-released study of REIT executive compensation trends. The Real Estate Solutions industry group of FTI Consulting conducted the study of over 125 REITS across all sectors of the real estate industry in July 2012.

Specifically, total compensation for REIT chairmen increased only 2% from 2010 to 2011, while total compensation for CEOs and all other executives increased 9% and 11% respectively. In addition, increases in cash bonuses for REIT industry executives ranged from 0% for chairmen to 5% for CEOs to as much as 12% for chief investment officers and 14% for all other senior executives. Lower level executives’ bonus increases were typically higher than those for C-suite executives as a result of their bonuses generally being more formulaically weighted towards individual and business unit performance, while the bonus payouts for C-suite executives were heavily weighted toward overall corporate performance, including earnings and stock price performance.

”In 2011, REITs aimed to balance corporate governance implications, including the second annual say-on-pay vote, and the increased influence of ISS and other proxy advisory firms, with an appropriate compensation program that properly motivated and rewarded executives,” said Anthony Saitta, managing director and co-head of the Real Estate Solutions industry group’s executive compensation team at FTI Consulting.

“Our research shows that total compensation for all REIT executives has steadily increased from its 2008 lows just as REIT stocks have also steadily rebounded, although, in 2011 the year-over-year increases were more moderate than in the prior few years,” Saitta noted.

In addition, in 2011 REIT executives received cash bonuses that were significantly higher than 2010 amounts, with median increases of approximately 8% for all executives; however actual adjustments ranged from -6% to over 37%. As a result of increased regulation, heightened shareholder scrutiny and board activism, the percentage of REITs with annual cash bonus plans solely based on subjective criteria (as opposed to formulaic/objective criteria) decreased significantly from 2008 (46%) to 2011 (37%). It is important to note, however, that approximately half of REITs (49%) have a formulaic bonus plan that utilizes a combination of objective and subjective bonus metrics in order to balance concrete performance goals with other goals that may be harder to quantify, such as balance sheet management, executive leadership and investor relations outreach initiatives.

“Compensation Committees have aimed to implement bonus programs that are transparent and provide shareholders with a clear understanding of what an executive’s bonus payment may be depending on the company’s performance, including a maximum amount,” said Saitta.

Other key findings of the FTI study were:

  •     Actual total compensation adjustments varied significantly by REIT sector, with the healthcare and multi-family sectors experiencing the largest year-over-year increases and the specialty finance sector actually experiencing slight year-over-year decreases at the C-suite level.
  •     In 2011, base salaries for REIT executives increased over 2010 levels by 3% at the median, with average increases of 7%.
  •     While equity compensation increased by approximately 4% at the median, the MSCI US REIT Index gained approximately 9%, the latter of which was a 20% decline over 2010 levels.
  •     Compensation committees and boards determined that executives should not be fully rewarded for the overall increases in REIT share prices, but with the utilization of performance shares and stock options, executives have the opportunity to earn more significant value for sustained long-term performance.
  •     REITs continue to redesign their long-term incentive (LTI) programs to include a multi-pronged approach including two or three compensation vehicles such as time-based restricted stock, performance shares and/or stock options.
  •     Board compensation in 2011 increased from 2010 levels by 4% at the median, with an average increase of 10%.
  •     The allocation between cash and equity awards for REIT boards was 45/55 respectively in 2011 versus 50/50 in 2010.
  •     Over 92% of shareholders voted in favor of the executive compensation proposals at REITs in the second say-on-pay proxy season.

“So far, 2012 has proven to be an uncertain economic environment and it is yet to be determined if the upward trend for increases will continue,” said Saitta. “We do anticipate, however, it will be another year where, depending on which REIT sector you are looking at, compensation adjustments may be significantly different.”

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 3,800 employees located in 24 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 $1.56 billion in revenues during fiscal year 2011. More information can be found at

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Nina Dietrich
Nina Dietrich LLC
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