real estate compensation

Real Estate Compensation Past, Present & Future

NAREIT®

HR ForumOctober 18, 2011

Presented by: Jeremy BanoffSenior Managing Director

FPL Advisory Group

This report may not be reproduced, re-distributed, sold, lent, licensed or otherwise transferred without the prior consent of FPL Associates L.P.

Welcome & Introduction

Two‐Minute Drill on FPL

Setting the Context of the Broader RE Industry

REIT Executive Compensation

Director Compensation

Review of the Private Sector

Legislation: Say on Pay

Other Compensation Issues

Best practices/FPL’s final thoughts

Agenda


A “Bit”

about FPLFPL Advisory Group

Family of companies that provide specialized advisory services to clients in the real estate industry

Three primary business lines:

Public and private real

estate companies

Across all property types

(e.g., retail, office, industrial,

multi‐family, diversified)

Work with all types of

companies, but mainly:

Owners/Operators

Investment managers

Developers

REITs

−

Executive Search −

Compensation Consulting −

Management Consulting

Clients

Conduct 125+ comp projects

each year within RE sector

Cover positions across all

organizational levels and

functions/departments

Project scopes normally

include one or more of the

following:

Benchmarking analysis

Plan/Program design

Tax/Accounting implications

Employment contracts

Projects

Conduct 20+ surveys per year

Partner with numerous real

estate trade associations

Unparalleled access to data

Surveys

FPL Associates: Compensation Consulting

1 2 3

Who We Are


Compensation Services

Compensation and Performance

Benchmarking

Comprehensive Compensation Program

Design

Board of Directors Compensation

Benchmarking and Program Design

Tax/Accounting Implications

Customized Surveys

Tally Sheets

Termination Scenario Analysis

Severance and Change‐in‐Control

Arrangements/Employment Contracts

Transactional‐based Compensation Services

(IPO, M&A, etc.)

Asia Public Real Estate Association

(APREA)

CoreNet

Global

European Public Real Estate Association

(EPRA)

International Council of Shopping

Centers (ICSC)

National Association of Real Estate

Investment Managers (NAREIM)

National Association of Real Estate

Investment Trusts®

(NAREIT)

Pension Real Estate Association (PREA)

PREQIN

The Real Estate Roundtable

Real Property Association of Canada

(REALpac)

Services /

Partnerships

Survey Partners


Best in Class Compensation Advice Equilar’s

2011 Consultant League Report

FPL serves best in class and leading companies as evidenced by the following:

*FPL

is

one

of

four

firms

whose

clients

were

listed

in

the

top

ten

for

both

1

and

3‐year

total

shareholder return.

FPL

provides

thoughtful

and

responsible

compensation

advice

as

evidenced

by

the

following:

Finally,

FPL’s

market

share

in

the

broader

financial

services

industry

was

ranked

7th

overall and beat any firm focused within real estate by a wide margin.

FPL Rankings

Ranking Category

#9 Clients with the best 1‐year total shareholder return*

#5 Clients with the best 3‐year total shareholder return*

#2 Clients experiencing the largest growth in market capitalization

Ranking Category

#4 Clients with the overall highest Say‐on‐Pay voting percentages FOR compensation

#8 Percentage of clients that had over 90% FOR votes relating to Say‐on‐Pay


Compensation Hot Topics

Setting the Right

Goals Enhanced Corporate Governance Pay for Performance

Balancing Risk & Reward

Clawbacks

Proxy Advisory

Firms

Perquisites

Say‐on‐PaySuccession

Planning

Compensation in Volatile EconomyAvoiding

CD&A Pitfalls

Compensation Program

Transparency

SEC Disclosure RulesCompensation

Committee

Independence

Golden

Parachutes Proxy Access Independence of Compensation AdvisorsProblematic Pay

Practices

Why We Are Here

Question

Has the time you spend on compensation issues increased in

the last 1‐3 years? If so, what is driving the increased time?

This report may not be reproduced, re-distributed, sold, lent, licensed or otherwise transferred without the prior consent of FPL Associates L.P.Source: PREA Compendium of Statistics 1‐26‐2011 &

REIT.com

FTSE NAREIT REIT Annual Returns

‐40

‐30

‐20

‐10

0

10

20

30

40

Annu

al Returns

1978 1982 1986 1990 1994 1998 2002

2006 2010

1978 1982 1986 1990 1994 1998 2002

2006 2010

NCREIF Annual U.S. Property Returns

‐20

‐15

‐10

‐5

0

5

10

15

20

25

Annu

al Returns

Historical

Performance

The public markets have been more

volatile than the private sector

Emerging from the financial crisis,

REITs have outperformed

However, private markets tend to

lag the public sector

Returns: Private vs. Public


Capital Raising: Private vs. Public

Annual Total Capital Raised (2010 ‐ YTD 2011)

$0

$10

$20

$30

$40

$50

$60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD2011

Billion

s•

Annual fundraising has fallen significantly since its peak in

2008•

Only $35.8 billion was raised in 2010

representing a near 30%

decline compared to 2009 and marking the lowest annual

total since 2003.•

Time to raise capital nearly doubled, as funds that closed in

2010 spent just shy of 17.6 months in market compared to an

average of 9.6 months in 2006.

Source: Preqin / FPL Real Estate Private Equity Compensation Survey (2010);

NAREIT REITWatch®

Capital Raising

•

REITs are on pace in 2011 to eclipse the all time record of total

capital raised•

2009 and 2010 saw consecutive years of record levels of

equity

capital raised

Annual Private Equity Real Estate Fund Raising (2000‐2010)

0

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

# of FundsAggregate Capital Raised ($B)


Core, Value‐Added, and Opportunistic

2005 2006 2007 2008 2009 2010

Core 19.69% 15.54% 15.08% ‐9.90% ‐33.64% 11.20%

Value Added 25.17% 18.22% 16.37% ‐19.81% ‐49.03% 7.00%

Opportunistic 38.88% 37.89% 23.74% ‐40.41% ‐33.26% 12.90%

NCREIF Townsend Index ‐ Annual Returns (2005‐2010)

50

75

100

125

150

175

2005 2006 2007 2008 2009 2010

Core Value‐Added Opportunistic

Source: NCREIF & NAREIT

Going back 10 years, opportunistic

provided the best returns (non‐risk

adjusted)

Core

fared better over the past 5

years

Historical

Performance


REIT Performance by Sector

‐80%

‐60%

‐40%

‐20%

0%

20%

40%

60%

80%

Office Industrial Retail Residential Lodging/Resorts Health Care Self Storage

2007 2008

2009 2010

YTD 2011

Historical

Performance

2007 2008 2009 2010 2011 YTD

Office ‐19% ‐41% 36% 18% ‐9%

Industrial 0% ‐67% 12% 19% ‐14%

Retail ‐16% ‐48% 27% 33% ‐10%

Residential ‐25% ‐25% 31% 46% ‐15%

Lodging/Resorts ‐22% ‐60% 67% 43% ‐7%

Health Care 2% ‐12% 25% 19% ‐7%

Self Storage ‐25% 5% 8% 29% ‐10%

Question

How would you rate your ability to forecast future performance?


FPL’s Top 100 Analysis

Reviews compensation of CEO, COO, CFO,

and

General

Counsel

at

Top 100 REITs (as defined by market cap)

Dates back to 2003 proxies (2002 pay)

Correlation between compensation and performance

Longest and most comprehensive study of its kind

Methodology

Base, Bonus, and LTI Values (Total Remuneration)

Common flaws for gathering data

Gathering data directly from tables in CD&A

e.g., Summary Compensation Table, Grants of Plan‐Based Awards

Top 100 Analysis


The Historical Results

Source: FPL’s Top 100 Analyses (2003‐2011)Based on median compensation levels

Total Remuneration: 2002 ‐ 2010

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Chief Executive Officer Chief Operating Officer Chief Financial Officer General Counsel

Thou

sand

s

2002 2003 2004 2005 2006 2007 2008 2009 2010

Note: Years correspond to performance years

Historical Trends in

Exec Comp.

Five‐year high, eclipsing the

previous peak levels paid for 2006

by 13%


2010 Compensation: Key Findings

For the second consecutive year:

Double digit increases in pay

Double digit total shareholder return performance

Record levels of capital raising

CEOs alone saw increases of 26%

Slightly

higher

than

the

reported

increase

amongst

CEOs

within

the

S&P

500

(24%

increases as of May 2011)

Top 100 public real

estate

firms

delivered

effectively

twice

the

returns

to

shareholders

in 2010, marking the second consecutive year of such outperformance

Overall

aggregate

level

of

compensation

amongst

top

four

executives

increased by 21% year‐over‐year

Important

to

note

–

while

earned

awards

were

relatively

high,

bonus

opportunities did not materially change

2010 Compensation


2010 Compensation: Key Findings (cont’d)

Base salary

Increases were modest for 2011 (2%)

Annual Incentives / Cash Bonus

Focus more on formulaic criteria

FFO per share (historically the most widely used cash bonus metric among REITs)

EBTIDA (given not all firms in the analysis were REITs and therefore do not report FFO)

Previous year, more discretion was applied due to the volatile environment

Long‐Term Incentives (equity‐based awards)

New/annual equity grants for 2010 had a FMV worth approximately 18% more than

awards made for 2009

Increase

is

a

modest

uptick

compared

to

the

16%

increases

for

2009

and

in

sharp

contrast to the 30% decline from two years ago (2008)

Stock

option

awards

granted

in

early

2009

are

now

worth

8.5x

their

grant

date

value,

as

stock

prices

have

bounced

back

(this

includes

the

few

option

grants

that

are still “out‐of‐the‐money”).

Total Remuneration

For

2010,

the

top

ten

highest

paid

real

estate

chief

executives

received

aggregate

total

pay

of

$132.6

million,

which

represents

a

47.5%

rise

in

pay

compared

to

the

top ten highest paid CEOs for 2009.

2010 Compensation


CEO to NEO Ratios

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2006 2007 2008 2009 2010

CEO:COO CEO:CFO CEO:GC

CEO

Pay Ratios


YOY CEO Pay

$0

$2

$4

$6

$8

$10

$12

Top 10 CEOs (by TotalCap)

Top 50 CEOs (by TSR) Bottom 50 CEOs (byTSR)

Top 10 Highest PaidCEOs

Millions

2009 2010

Top 10 CEOs (by Total Cap)

Top 50 CEOs (by TSR)

Bottom 50 CEOs (by TSR)

Top 10 CEOs (Highest Paid)

Top 100 CEO Pay


Performance Makes A Difference

Change in Total Rem. vs. % Change in TSR and FFO/Share Growth

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

% Change in Total Rem. TSR FFO/Share Growth

Financial

Markets

Meltdown

Source: FPL’s Top 100 Analyses (2003‐2011)

Based on median compensation levels

Performance Impact

2003 2004 2005 2006

2007 2008 2009

2010


Executive Perquisites

All Other Compensation (2005 ‐ 2010)

$338,815 $334,433$356,175 $348,101

$249,632$228,929

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

2005 2006 2007 2008 2009 2010

Source:2011 CEO Benefits & Perquisites, EquilarBased on median compensation levels

Fortune 100 Perk

Trends


Real Estate vs. the Market

CEO Compensation: Top 100 REITS vs. S&P 500

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

S&P 500 CEOs S&P Index Top 100 REIT CEOs NAREIT Equity Index

Sources: FPL’s Top 100 Analyses (2003‐2011),

Equilar Press Releases (2004‐2011), S&P Website

Based on median compensation levels

REITs vs. S&P

REIT executive

compensation is highly

correlated to total

shareholder return

performance across the

industry, as evidenced

by the strong overlap in

the blue shaded lines

2003 2004 2005 2006 2007

2008 2009 2010


Stock Options vs. Restricted Stock

NAREIT®

Compensation

Survey

reveals

at

all

levels

the

usage

of

restricted

stock

is

increasingly more common than stock options for long‐term incentive awards

The S&P 1500 showed similar results over the past five years with option grants falling

9% and restricted stock grants increasing 15%

Equity Compensation

Sources: NAREIT®

Survey (2006‐2011),

Equilar

Press Release (2011)

Stock Options vs. Restricted Stock (2006 ‐ 2010)Executive Management Level

0%10%20%30%40%50%60%70%80%90%100%

2006 2007 2008 2009 2010

Restricted Stock Stock Options


Beyond the Executives

2004 – 2007 2008 2009 2010 Projected

2011

Construction

Development

Transactions

Property

Management

Leasing

Functional Comp.

Trends

The table above is further differentiated by asset focus and geography

Question

Has how you pay employees and/or executives fundamentally changed over the last 1‐3 years? If so, how?


The Private Side: NAREIM Results 2011

Base Salaries

increased 3% to 6% for most of the positions covered in this year’s

survey, when compared to the results from last year’s survey for the same

positions

88%

of

participants

increased

salaries

in

early

2011

(versus

66%

of

participants

in

last

year’s

survey),

and

the

other

12%

of

firms

kept

salaries

flat (as opposed to reducing salaries)

Total cash compensation

and total remuneration

increased for roughly 75% of

the positions covered, with most positions experiencing a change

of +5% to

+30%

Most positions’

total remuneration experienced a year‐over‐year change of +5%

to +25%, with a median and average change (across all positions)

of +10% and

+11%, respectively

Review of the

Private Sector


Cost of Governance Increasing

The Top 100 results revealed Board of

Director

compensation

was

up

9%

between

2009

and 2010.

On

a

per

Director

basis,

Board

compensation

increased

by

approximately

7%

to

a

median

level

of

$118,000. The smallest amount within the top 100 was $57,150 per

Director, whereas the highest amount

was $303,957.

In aggregate, (based on the actual number of non‐employee/Independent Directors and actual number of

Board meetings held), the overall level of pay increased by approximately 11% to $712,905.

Over

one‐quarter

(27%)

of

companies

paid

out

more

than

$1

million

in

Board

of

Director

compensation

last year.

29

firms have already announced changes (increases) for 2011:

The

majority

of

the

changes

include

an

increase

in

either

the

cash

retainer,

annual

equity

award

grants

and/or

eliminating

meeting

fees

and

implementing

committee

member

retainers

in

lieu

of

such

meeting

fees.

Of those making changes in 2011, the median increase to the annual retainer (cash and/or equity) is 41%

compared to 2010 levels.

A

number

of

companies

have

announced

the

elimination

of

meeting

fees

altogether

in

exchange

for

a

higher

level

of

overall

Director

retainer

fee

and/or

separate

fixed

retainers

for

serving

on

a

given

Board

committee. This practice was somewhat utilized in 2009/2010 but

has gained momentum for 2011.

Director

Compensation

Question

How many of you believe your Board/Compensation Committee

has a good understanding of how your current incentive plans work?


Best Practices for Benchmarking

Peer Group Selection

Median # of companies: 15

Size: 0.5 – 2x their revenue size (small‐cap companies continue to pick large‐cap peers)

Highly paid CEOs are the most prevalent peers for benchmarking

For

the

highest

paid

group,

the

average

number

of

times

that

a

company

is

benchmarked is 34% more often than the lowest paid group.

Peer Selection

Source: ISS

Relative Size of Selected Peers (2010)

< 0.5x22%

< 0.5x13%

0.5 ‐ 2x59%

0.5 ‐ 2x54%

> 2x19%

> 2x33%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

S&P 500

Small Cap


Benchmarking as Accurately as Possible

FPL’s holistic examination of compensation

Comparisons based on job roles, not simply job titles

Individual vs. aggregate analyses

Targets vs. actuals

Risk‐adjusted compensation

FPL Difference


Risk‐Adjusted Compensation Analysis

Absolute TSR

Minimum 5%

Target 7%

Maximum 9%

Risk Analysis

Person A Person BBoth have total compensation opportunity

of $1M

Base Salary: $500,000

Base Salary: $300,000

Bonus Opportunity: $250,000

Bonus Opportunity: $200,000

LTI Opportunity: $250,000

LTI Opportunity: $500,000

100% Performance‐Based

50% Performance‐Based

50% Time‐Based

Absolute TSR

Minimum 9%

Target 11%

Maximum 13%

Question

What compensation issues are you most concerned about going into

2012?


Proxy Disclosure Best Practices

Kimberly‐Clark

Corporation


Proxy Disclosure Best Practices

McKesson

Corporation


Proxy Disclosure Best PracticesFiscal 2011 Financial HighlightsDell

achieved

strong

financial

results

for

Fiscal

2011.

Total

net

revenue

increased

16%

over

Fiscal

2010

with

increases

across

all

of

Dell’s

Commercial

segments.

The

recovery

in

the

economy

during

Fiscal

2011

helped

strengthen

demand

from

commercial

customers

as

the

corporate

refresh

cycle

continued,

particularly

for

Dell’s

Large

Enterprise

and

Small

and

Medium

Business

customers.

Dell’s

profitability

improved for each quarter of Fiscal 2011. Enterprise solutions and services revenue for Fiscal 2011 grew 27% over Fiscal 2010. Dell has also

improved

profitability

in

its

client

product

business

by

simplifying

its

product

offerings,

optimizing

its

supply

chain,

and

improving

pricing

discipline during a favorable component cost environment. The following table summarizes key financial results for Fiscal 2011 as compared

to Fiscal 2010 (in millions, except per share data):

Dell Corporation

Summary of Compensation Decisions For Fiscal 2011

Chief

Executive

Officer

Compensation:

To

reward

Mr.

Dell

for

his

Fiscal

2011

performance,

as

well

as

the

company’s

strong

financial

results,

the

Leadership

Development

and

Compensation

Committee

(the

“Committee”)

approved

bonus

payments

to

Mr.

Dell

totaling

$3,385,000,

as

well

as

a

grant of 452,899 nonqualified stock options and a grant of

482,936

performance‐based

restricted

stock

units

(“PBUs”)

for

Fiscal

2012.

As

described

below,

the

actual

number

of

PBUs

earned

will

be

between

0%

to

225%

of

target

based

on

company

performance

measured

against

two

metrics

including three year cash flow from operations on a per share basis and the three year total shareholder return ranking. Mr.

Dell did not receive an

increase in base salary or target bonus for Fiscal 2012.

Named

Executive

Officer

Merit

Increases:

For

Fiscal

2011,

in

order

to

further

cost

management

efforts

and

as

a

result

of

the

continued

challenging

external

market

conditions,

only

one

Named

Executive

Officer

received

a

salary

increase,

which

was

a

result

of

a

significant

increase

in

responsibilities. For Fiscal 2012, all Named Executive Officers,

other than Mr.

Dell, received salary increases ranging from 2.7% to 7.1% of base salary

due to improvements in the economy and the company’s performance, to better align their salaries with the market and peer levels and to address

internal equity considerations.

Changes

to

the

Incentive

Bonus

Plan

Design:

For

Fiscal

2011,

the

Committee

adopted

several

changes

to

the

incentive

bonus

plan

including

the

additions

of

a

second

corporate

financial

target

and

a

corporate

scorecard

(“Corporate

Scorecard”).

Previously

the

plan’s

single

corporate

financial

target

was

adjusted

(non‐GAAP)

operating

income.

For

Fiscal

2010,

the

bonus

pool

funding

was

100%

dependent

on

achievement

of

adjusted

operating income targets. For Fiscal 2011, the Committee adopted

operating income as a percentage of revenue (“Operating Income Percentage”) as

a corporate financial target.


Say on Pay, Then & Now

Say on Pay Gaining Popularity…

2009

Say on Pay currently only required for

TARP recipients

Current legislation in Congress will

require all public companies to give

shareholders a non‐binding vote on

compensation matters once a year

Continues to be a possibility going

forward

A handful of companies have

voluntarily adopted the practice

Be prepared and follow best practices –

pay program transparency in CD&A

Say on Pay

First Say on Pay Votes In…

2011


Dodd Frank Overview

Dodd‐Frank Wall Street Reform and Consumer Protection

Act enacted on July 21, 2010

Say on Pay enacted on January 25, 2011

Three non‐binding shareholder votes:

Say on Pay: a general advisory vote on compensation of NEOs

Say on Frequency: recommendation of frequency (i.e., annual,

biannual, triennial) in which Say on Pay vote should occur

Say on Parachutes: vote on “golden parachutes”

Compensation arrangements triggered by mergers, consolidations, sales,

or other similar transactions and dispositions

Say on Pay


Say on Pay Results

As of September 23, 39 companies have failed (1.2% overall)

2 REITs

Average shareholder support for failed companies: 45%

Average support for Say on Pay votes was 91.2%

Primary reason for failure:

Pay‐for‐performance concerns (28)

Problematic pay practices (11)

Those companies that received greater than 30% opposition (168) in

2011 will receive greater attention in 2012

Say on Pay

Say on Pay Vote ResultsPercentage Approval

71%

21%

6%

2%

90% +70 ‐ 90%50 ‐ 70%Below 50%


81%

19%

87%

13%

89%

11%

89%

11%

89%

11%

92%

8%

79%

21%

93%

7%

88%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ISS Recommends "FOR" ISS Recommends "AGAINST"

Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities All

Say on Pay Vote Details

Say on Pay

Energy and Telecommunications

received the highest proportion of

ISS “against”

recommendations

Materials and

Utilities received the

lowest proportion of

ISS “against”

recommendations


Say on Frequency Results

Management Recommendations

None3.37%

Triennial29.41%

Biennial2.30%

Annual64.93%

Say on Pay

Shareholder votes:

81% annual vs. 19% triennial


Proxy Advisory Influence

“Against”

recommendations by proxy advisory firms:

ISS: 13%

Shareholder support was 25% lower at these companies

Average approval with ISS “for”: 94%

Average approval with ISS “against”: 69%

Glass‐Lewis: 17%

Shareholder support was 5‐6% lower at these companies

Say on Pay

Say on Pay Vote Results When ISS Recommends Against

12%

16%

25%

20%17%

6%4%

0%

5%

10%

15%

20%

25%

30%

Below 50% 50 ‐ 60% 60 ‐ 70% 70 ‐ 80% 80 ‐ 90% 90 ‐ 95% Above 95%

Say on Pay Shareholder Vote Result

% of Total ISS Re

commen

dation

s "A

gainst"


Performance and Say on Pay

ISS cited pay for performance issues in over 2/3 (28) of the

companies that failed their vote

Below median TSR = 5x

more likely to receive “against”

recommendation from ISS

All companies

Above either1‐year or

3‐year TSR:71%

Below either1‐year and

3‐year TSR:29%

TSR Performance vs. GICS Group Median

Against: 4%

For: 21%

For: 67%

Against: 8%

ISS’Recommendation

Pass: 92%Average Vote: 72%




Vote Outcome

Say on Pay


Say on Pay Aftermath

107 Company Responses

Derivative Law Suits

Pay for Performance definitions

More shareholders planning to vote no on pay in 2012

Say on Pay


Say on Pay Takeaways

Proxy advisers hold the cards

Eliminate questionable pay practices

Stand your ground on “pay for performance”

Go directly to shareholders

Make proxy statements clear

Bloomberg Businessweek

Say on Pay


Dodd‐Frank Act –

Tentative Rulemaking Schedule

Rule Timeframe

Say on Pay / Say on Frequency

Effective now

In 2013 for Smaller Reporting Companies

Shareholder Approval of Golden Parachute Compensation

Effective nowDisclosure Regarding Chairman & CEO StructuresElimination of Discretionary Voting by Brokers on Executive

Compensation ProposalsWhistleblower

Compensation Committee Member Independence

SEC Proposed Rules Issued March 2011

SEC Final Rules Due by December 2011

Still Need Exchanges to Issue RulesIndependence of Compensation Consultant, Legal

Counsel, and Other Advisers

Policy on Recovery of Erroneously Awarded

Compensation

Proposed SEC Rules by December 2011

Final SEC Rules in January – June 2012

Exchanges Need to Issue Rules

Disclosure of Hedging by Employees & Directors

Proposed SEC Rules by December 2011

Final SEC Rules in January – June 2012Disclosure of Pay Versus Performance

Pay Ratio Disclosure

Source: Winston & Strawn,

Preparing for the 2012 Proxy Season

Legislative Timeline


ISS Reminders

New guidelines for 2012 expected to be released in November (2011)

Review of 2011 “poor pay practices”

(not likely to fall into favor this year)

280G, tax gross‐ups, or other executive perks

Single‐trigger CIC provisions

Excessive severance (i.e., exceeding 3x base + bonus)

Executive housing

(e.g., excessive relocation, home‐loss make‐whole payments)

Easily achievable target

Changing performance guidelines mid‐year

Excessive LTI without performance metrics attached

Repricing or replacing of underwater stock options/SARS without prior

shareholder approval

ISS Poor Pay

Practices Policy


Broader Compensation Issues

Re‐evaluation of market needs

Internal equity

Retention

Succession planning

Beyond Pure Pay


2012 Base Salary Projections

Description Summary Results

NAREIT

Annual compensation survey

109 real estate company

participants

Base salary increases for 2011 were the highest they

have been in several years at 3%

33% of executive base salaries remained unchanged or

decreased over the past year, the largest of any of the

employment groups

For the remaining 67%, however, base salaries increased

by 3.5% (based on median).

For 2012, NAREIT respondents generally anticipate salary

increases of 3.0% for all employment groups

WorldatWork

Annual salary budget survey

2,400 participants

For 2011, the actual average increase in salary budgets

was 2.8% and is projected to slightly increase to 2.9% for

2012.

Employers will continue to differentiate among top

performers, providing salary raises of 3.7% for such

individuals (on average).

Aon Hewitt

Annual salary increase survey

1,500 large U.S. companies

2.9% base salary increase projection in 2012

The

Conference

Board

Annual survey

400 companies

For 2011 the median budget for salary increases was

reported as 3.0%, which is slightly greater than it has been

the last two years, and is projected to remain the same in

2012.

Base Salary Trends

Question

Are you contemplating significant changes to your compensation

programs for 2012? If so, what changes, and what is driving the decision?


FPL’s Final Thoughts ‐

PREPARE

FPL’s Final Thoughts

P Key to establishing comp levels next year is understanding the appropriate Peer Group.

Where does your

company fit in in terms of size and performance? Business strategy? Risk‐taking? Geography?

R Can you generally rationalize

/ justify that the compensation program is linked to performance? Is it the right

type of performance? How does the program and payouts compare to

last year?

E Eliminate

programs, benefits, perquisites that do not effectively motivate and retain top

talent and may be viewed as excessive/egregious.

P Pay‐for‐performance: are the performance

metrics in line with the overall strategy of the

company?

A Appearance

is key. Would the program receive approval

from shareholders and ISS?

How

would the program be perceived to the outside world?

R Does the program encourage the appropriate level of risk?

E Evaluate

performance (all types) in a holistic manner. Does the program set the right

compensation expectations

for participants, the Board and shareholders?


Biography

Contact InformationFPL AssociatesJeremy Banoff, Senior Managing Director191 North Wacker Drive, Suite 2850Chicago, Illinois 60606T: 312.368.5088 (ext. 2339)E:

[email protected]

Bio / Contact Info

Mr. Banoff is a

Senior

Managing Director

with FPL

Associates

L.P.,

responsible for

managing

the

compensation

consulting

division with FPL. Mr. Banoff has extensive experience working with senior management and Board of Directors to identify

and implement strategic executive compensation programs designed

to attract, retain, and motivate key employees. Mr.

Banoff

provides

expertise

on

a

range

of

compensation

issues

to

his

clients,

which

include

a

significant

number

of

public

REITs

and

private

real

estate

companies. Additionally,

Mr.

Banoff

has

significant

background

with

compensation

matters

relating

to

Board

of

Director

compensation

design,

broad‐based

organizational

benchmarking,

employment

agreement

structuring and negotiations, tally sheet preparation and customized surveys.

Over his career, Mr. Banoff has advised a wide array of clients in the real estate industry with a primary focus on the public

sector. In addition, he is responsible for overseeing FPL’s survey team, which conducts nearly 25 unique surveys within the

real estate industry per annum, Mr. Banoff has completed over 300 client assignments focused within all facets of the real

estate industry.

Mr. Banoff is widely cited in compensation issues affecting the real estate industry, including articles published in the Wall

Street Journal, Commercial Property News, Real Estate Portfolio Magazine,

Commercial

Property

Executive,

National Real

Estate Investor, amongst others, and he is a frequent speaker at

various real estate industry events, including symposiums

sponsored by NAREIT, NMHC, and REALpac. He is also a member of WorldatWork, the Global Equity Organization, and the

National Association of Stock Planning Professionals (NASPP).

Mr.

Banoff

received

his

B.S.

in

Finance

with

honors

from

the

University

of

Illinois,

College

of

Commerce

and

Business

Administration.

real estate compensation

Documents