REITs Reported 25% Median Decline in Executive Officers' Annual Bonuses in 2008, Says The Schonbraun McCann Group

Share Article

New REIT Executive Comp Study Says Total Compensation for CEOs Declined More Than for Other REIT Officers

Annual bonuses for REIT CEOs declined in 2008 by a median of 25% over 2007, but ranged from moderate increases of 3% to decreases of over 50%, according to a just-released study of REIT executive compensation trends. The Schonbraun McCann Group, an FTI Company, conducted the study of 128 REITS across all sectors of real estate in June 2009.

Specifically, the Schonbraun McCann Group study revealed that cash bonuses for REIT officers decreased at the median by 10% but ranged from 15% increases to decreases of over 50% at REITs with liquidity and operational performance concerns. The equity component of annual bonuses experienced even more significant declines of approximately 30% at the median, with decreases ranging from flat to declines of over 60%.

According to Larry Portal, senior managing director and co-head of SMG's executive compensation group, "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 cash bonuses. Since a REIT's liquidity position is often hard to precisely define, they often looked to the management team for guidance on the REIT's true liquidity position."

Among the Schonbraun McCann Group study's other key findings were:

  • While equity compensation decreased by approximately 30% on average, the MSCI REIT Index dropped by nearly 38%.
  • Compensation Committees generally reduced total compensation levels with the largest impact being to long-term incentive awards, as a result of depressed stock prices. For example, the median decline for CEOs' cash bonuses was 8%, while the median decline for CEO's equity bonuses was 30%.
  • While annual bonuses for CEOs experienced a median decline of 26%, the median decline for total compensation was only 13%. This was the result of certain fixed compensation components, including annual base salaries, which generally remained flat over 2007 levels or experienced moderate increases, as well as other miscellaneous compensation costs (i.e. 401(k) contributions, insurance premiums, etc.).
  • Additionally, CFO's total compensation had a median decline of 12%; for all other executive officers, total compensation had a median decline of 9%.

Larry Portal also believes that "Due to the dramatic declines in 2008 annual bonuses, 2009 adjustments may level off somewhat but will vary depending on each REIT's fundamental and market performance along with its liquidity position. In addition, many REITs will have to manage limited share capacity in their equity incentive plans, which may result in less equity award grants until an upsizing is approved by shareholders."

About The Schonbraun McCann Group
The Schonbraun McCann Group (SMG), an FTI Company (NYSE: FCN), is a global consulting firm dedicated 24/7 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. For more information, visit http://www.smgllp.com.

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 3,300 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.

###

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Dave Baross

Nina Dietrich
Nina Dietrich LLC
201 493 8944
Email >
Visit website