REIT Executives Pocketed More Cash in 2011: FTI Consulting

Total pay for executives jumped 7 percent year-over-year on average. Compensation is becoming tied more closely to performance.

For REIT executives, 2011  was a very good year, according to a study of compensation by FTI Consulting Inc.’s Real Estate Solutions industry group. Total pay for executives jumped 7 percent year-over-year on average.

The upside involved more than cash. In addition to base salary and cash bonuses, the FTI assessment of 125 REITs from all industry sectors counted equity awards and all other forms of compensation. The uptick in the average total compensation is notable, as is the rise in the median figure, which ranged from 5 to 10 percent. Looking specifically at base salaries, those at the helm benefited from an average increase of 7 percent.

But the survey also concluded that the increases varied widely.  The 2 percent increase recorded by the average REIT chairman paled in comparison to the 9 percent year-over-year boost for CEOs, and the 11 percent jump for all other executives. Seen strictly in terms of cash rewards, pay for those sitting in the chairman’s seat was unchanged in 2011. CEOs walked away with 5 percent more in cash bonuses and those holding the chief investment officer role enjoyed an average 12 percent increase. Topping the list were senior executives lower on the totem pole, who tallied a 14 percent boost in bonuses.

The overall rise in compensation continues an upward trend that began following 2008’s low point; it’s an increase that parallels the steady recovery of REIT stocks. The median increase in cash bonuses for all executives from top to bottom totaled 8 percent. But a closer look at the numbers tells a different story. Actual adjustments in cash rewards ranged from a 6 percent decrease to a 37 percent uptick.

In the REIT world, executive compensation is evolving. The year-over-year figures were influenced by increased regulation, greater shareholder scrutiny and higher board activism.  “In the big picture, what I found most intriguing is that, in line with what investors expect, over the last couple of years there has been a significant trend toward providing executives with performance-based pay,” Anthony Saitta, managing director and co-head of Real Estate Solutions’ executive compensation team, told CPE.

It’s a trend that skews the numbers to a certain extent. For example, with a performance-based equity award in the form of, say, 1,000 shares of stock, the executive would keep that stock and perhaps see returns of 10 percent over the next few years. Such rewards can only be accounted for after the fact.

“So what you see in a proxy table isn’t necessarily what that person is making because it’s contingent upon future events,” Saitta noted. “It makes it difficult to really put a precise dollar amount on what these executives are earning when you look at it today. You have to wait a couple of years to do a retrospective to see what they actually earned from that.”

Such compensation  cannot necessarily be viewed as money in the bank. But it’s not a bad thing, Saitta believes. “It’s a good development in that it keeps executives focused on not just what they did yesterday but what they’re going to do going forward,” he said. “It could [result in] a windfall if the company does very, very well so it provides alignment and it provides, potentially, a big carrot at the end of the stick.”