July 2013
FTI Consulting recently released its annual report regarding 2012 compensation trends within U.S.- based REITs and other real estate-related entities. Below, we’ve summarized information we thought you'd find valuable.
Based on a survey of 493 individuals in the U.S. REIT sector, increases in total compensation averaged 10% at the median in 2012 over 2011.
The following chart outlines the changes in median compensation level for U.S. REITs in 2012 over 2011 for the top few positions:
|
POSITION |
MEDIAN INCREASE IN BASE SALARY |
MEDIAN INCREASE IN CASH BONUS |
MEDIAN INCREASE IN EQUITY-BASED/LONG TERM INCENTIVES |
TOTAL INCREASE AT THE MEDIAN |
|
CEO |
3% |
13% |
11% |
9% |
|
COO |
3% |
11% |
11% |
12% |
|
CFO |
3% |
11% |
11% |
12% |
|
CIO |
4% |
20% |
19% |
15% |
|
General Counsel |
3% |
10% |
13% |
12% |
|
Other |
3% |
7% |
4% |
5% |
Most significant were increases in total compensation within the COO, CFO, CIO and Counsel functions.
Base salaries increased an average of 6%, or 3% at the median. 35% of reporting REIT executives within the survey received no salary increase for 2012 (up from 33% in 2011).
Cash Bonus levels experienced meaningful increases over 2011, with median increases of 10% for all exectuives (up from 8% in 2011 over 2010). Actual amounts ranged from -3% to over 35%, at the 25th and 75th percentiles, respectively.
FFO per share grew 8% at the median, though companies continued to reward exectuives for achievement of metrics beyond earnings performance. Other performance metrics include:
65% of REITS employ a combination of both discretionary and formulaic measures to award annual cash bonuses, up from 35% in 2009.
Long Term Incentives increased 10% at the median over 2011, up from 4% in 2011 over 2010. Actual amounts ranged from flat to +40%, at the 25th and 75th percentiles respectively. At the same time, the MSCI US REIT Index increased by approximaely 18% in 2012. Boards determined that executives should not be fully rewarded for the overall increases in REIT prices, but are utilizing performance shares and options to provide executives the opportunity to earn more significant value for sustained long-term performance.
The combination of the components of total compensation held relatively stable in 2012, and is outlined in the chart below:
|
POSITION |
LONG-TERM |
CASH BONUS |
BASE SALARY |
|
CEO |
51% (down from 52% in 2011) |
27% (up from 25% in 2011) |
19% (down from 21% in 2011) |
|
COO |
47% (up from 45%) |
30% (up from 25%) |
22% (down from 25%) |
|
CFO |
45% (no change) |
27% (up from 25%) |
24% (down from 27%) |
|
Other |
46% (up from 39%) |
27% (down from 28%) |
24% (down from 30%) |
REITs operating in stronger sectors realized more significant increases in executive compensation. The table below outlines the summary data for the following U.S. sectors:
Diversified Office Retail Industrial Hospitality Multi-Family Healthcare
|
POSITION |
CHANGE IN BASE SALARY |
CHANGE IN CASH BONUS |
CHANEGE IN LONG TERM PLAN |
CHANGE - TOTAL |
|
CEO |
+0% |
+5% |
+13% |
+8% |
|
|
0 |
+10% |
+8% |
+7% |
|
|
+3% |
+18% |
+7% |
+11% |
|
|
+3% |
-7% |
+12% |
+5% |
|
|
+3% |
+39% |
+4% |
+4% |
|
|
+5% |
+6% |
+11% |
+11% |
|
|
+5% |
+26% |
+2% |
+9% |
|
|
|
|
|
|
|
COO |
+2% |
+3% |
+26% |
+7% |
|
|
+3% |
+12% |
+4% |
+11% |
|
|
0 |
+1% |
+11% |
+8% |
|
|
n/a |
n/a |
n/a |
n/a |
|
|
+3% |
+18% |
+40% |
+25% |
|
|
+3% |
+5% |
+13% |
+13% |
|
|
n/a |
n/a |
n/a |
n/a |
|
|
|
|
|
|
|
CFO |
+1% |
+4% |
+11% |
+6% |
|
|
+3% |
+15% |
+1% |
+9% |
|
|
+3% |
+13% |
+11% |
+11% |
|
|
+3% |
+13% |
+21% |
+14% |
|
|
+4% |
+19% |
+16% |
+22% |
|
|
+5% |
+10% |
+14% |
+9% |
|
|
+7% |
+16% |
+31% |
+21% |
|
|
|
|
|
|
|
Other |
+3% |
+11% |
+2% |
+5% |
|
|
0 |
+16% |
+6% |
+8% |
|
|
+3% |
+11% |
+11% |
+9% |
|
|
+4% |
+5% |
+15% |
+7% |
|
|
+4% |
+4% |
+21% |
+11% |
|
|
+6% |
+9% |
+5% |
+10% |
|
|
+4% |
+22% |
+6% |
+9% |
Diversified Office Retail Industrial Hospitality Multi-Family Healthcare
While the information presented above is U.S.-centric, we hope that you found some of the general trends informative.