Real Estate Compensation Rises Again Along with Performance

May 30, 2012, 08:56 ET from FPL Associates

Compensation at highest level in a decade

CHICAGO, May 30, 2012 /PRNewswire/-- Executive compensation at the country's largest 100 publicly traded real estate companies for performance year 2011 is the highest it has been in a decade, having increased by 14% compared to last year's previous all-time high for the top four positions (CEO, CFO, COO and General Counsel) in aggregate, according to FPL Associates' 10th  annual exclusive industry focused review of compensation.

Executive base salaries increased by 10%.  "This marks the first double digit increase and is likely a 'catch up' after several years of flat to nominal increases," said Vanessa Garza, Director at FPL Associates.  CEOs alone at nearly 20% of the companies included in the study received base salary increases of $100,000 or more.

Increases in base salaries were more than matched by increases in incentive-based compensation, namely the value of long-term incentive awards, which jumped nearly 25% compared to last year. 

Notably, 2011 marked the third consecutive year of positive total shareholder return performance among REITs and record level of capital raising.  "Total Shareholder Returns for the REIT sector outperformed the S&P 500, the NASDAQ and Dow Jones for not only 2011 but also over the three-year period since the financial crisis," according to Jeremy Banoff, Senior Managing Director at FPL Associates, "and total shareholder return is the most common metric utilized for determining long-term incentive awards."

Legislative changes like Say-on-Pay and pressure from proxy-advisory firms continue to impact how companies structure their compensation programs.  In 2011, many companies in the analysis removed gross-up provisions, implemented share ownership guidelines, and added clawback provisions (allowing a company to take back previous performance-based payment based on restated financials) as well as adopted more transparent annual and/or multi-year performance-based programs.  However, not all firms have gone unscathed as two REITs failed the first year of Say-on-Pay and two more (one being the same firm in each year) have already failed in 2012.

Ms. Garza noted, "There is an increasing trend toward awarding long-term incentive awards based on multi-year performance."  Nearly 50% of the top 100 companies disclosed information with respect to a multi-year compensation program, up from approximately one-third last year, according to FPL's findings.

Across the broader executive team, median compensation for the top five named executive officers in aggregate at the 100 companies included in the study rose to $9.8 million although the increases were in conjunction with relative strong performance.  "Perhaps most notably is the fact that the top quartile of companies in terms of performance received compensation increases approximately five times larger than the bottom quartile performers," observed Mr. Banoff.

SOURCE FPL Associates