Dees Stribling, Contributing Editor
New York–Total compensation for REIT CEOs increased in 2009 by a median of 18 percent, according to a study released this week by FTI Schonbraun McCann Group (SMG), the real estate advisory business of FTI Consulting Inc. All together SMG studied 117 REITs across all sectors of the industry, including multifamily landlords, in June 2010.
While a small percentage of REITs saw total compensation decrease by more than 2 percent, a majority of the REITs surveyed marked increases in total compensation of as much as 50 percent. Increases were mainly in the form of bonuses, with 2009 annual bonuses growing 26 percent (at the median) over 2008.
REIT CEO bonuses saw shifts to cash and equity percentages. Annual cash bonuses for REIT officers increased at the median by 3 percent, with respondents ranging from increases of over 21 percent to decreases as deep as 12 percent at REITs with liquidity and operational performance problems. The equity component of annual bonuses experienced even more significant increases of about 22 percent at the median, ranging from no change at the low end to a whopping 77 percent increase. Still, on an aggregate basis, total compensation for REIT officers remained about 5 percent below 2007 levels at the median.
Why the general upsurge in compensation? Compensation committees and boards of directors generally consider fundamental performance, as well as a REIT’s current and near-term liquidity position, in determining annual compensation levels and especially cash bonuses, SMG explains. Compensation committees have lately been seeking to strengthen the alignment between executives and shareholders by increasing the use of performance-based equity awards, the kind that will only be earned through sustained corporate performance over the next three to five years.
Not all sectors of the REIT business fared equally well. “Although the overall REIT industry’s 2009 total compensation levels generally increased, the various industry sectors experienced significantly different year-over-year compensation adjustments, with sectors that experienced stronger overall performance generally receiving more significant increases,” Anthony Saitta, a managing director at SMG, tells MHN.
“Within the multifamily sector, cash bonus adjustments generally ranged from flat to decreases of 10 percent, as NOI growth continued to struggle due to rental revenue declines,” Saitta continues. “However, long-term equity award levels increased by about 10 percent to 30 percent because of strong total return performance–the SNL Multifamily Index increased by 39 percent in 2009, after all. Overall, total compensation within the multifamily sector increased by about 12 percent to 16 percent, which is roughly in line with the increases seen in the REIT industry.”