REIT Director Pay Falls 9% on Average in 2009
Projected 2009 total remuneration at the Board level of Real Estate Investment Trusts (REITs) fell between -8.5% and -9.5% on average over 2008, depending on Committee role. This compares to a much smaller 2% drop among Fortune 200 companies. Total Director pay at REITs declined by about $12,000 for the Audit and Compensation Committee Chairs, and slightly less for those Directors serving in other positions.
This reduction in compensation stems from depreciated stock values, as well as the method by which firms grant equity awards to their Directors. Approximately 45% of REITs included in the study grant annual awards denominated as a fixed number of shares as opposed to a fixed dollar value, while an additional 8% use a combination of the two. This differs from Fortune 200 companies, 70% of which make equity awards solely based on a fixed cash amount.
“Awards based on a fixed number of shares expose a firm’s Directors to wide variations in pay, as volatile markets directly impact stock values,” said Steven Hall, Managing Director of Steven Hall & Partners. “This makes it difficult for Director programs using a fixed number of shares to deliver consistent equity value year over year, and is the reason that most companies have switched to granting equity based on a fixed dollar value.”
Total remuneration is expected to range on average from $108,192 for non-committee Chair service to $122,554 for Audit Chair service in 2009. While this represents a relatively narrow band, total pay across firms ranged from about $16,000 to a high of $410,000 for Audit and Compensation Chairs. These values are significantly below what is generally observed among general industry firms of similar asset size, which on average reported pay 53% higher.
“Our findings indicate some significant differences in both levels of pay, and pay mix at REITs, when compared to general industry companies. This is in line with the notion that many REITs have yet to catch up with the market in terms of Director remuneration design,” said Joseph Sorrentino, Managing Director of Steven Hall & Partners.
Over ninety percent of REITs studied pay Directors both a cash and stock retainer. The cash-equity split was found to be weighted more heavily toward cash, comprising approximately 60% of total, depending on Committee role. This differs from general industry firms of similar size, which tend to pay their Directors with a more even split between cash and stock.
Board and Committee meeting fees were found to be prevalent among REITs, being paid by approximately 75% of the companies studied. This represents a significant departure from general industry firms of similar size, which pay Board and/or Committee meeting fees in around 60-65% of the cases, while only 35% to 45% of the Fortune 200 pay these fees.
“Compared to most industries, REITs are relatively young as public companies. As their Boards continue to evolve, we expect the deviation from general industry practices to decline as these firms will be forced to compete more aggressively with the rest of the market,” said Mr. Sorrentino.
The study also found that certain sectors within the REIT industry tend to pay more on average than others. REITs in the Hotel sector are projected to pay Directors $87,918 on average in 2009, 33% less than REITs competing in the Regional Mall sector, where the average Director is expected to receive $130,867. While this difference may be due to the generally larger size of Regional Mall REITs (median asset size about three times that of Hotel REITs), other differences across REIT sectors were observed. Hotel and Regional Mall REITs pay their Board members more heavily in cash than REITs in other sectors, with the stock portion making up only around 25-30% of total pay. Projected 2009 pay for other REIT sectors such as Apartments, Office Properties, and Shopping Centers range from $99,507 to $131,061 for Audit Chairs, while the average Director is likely to receive anywhere from $95,611 to $124,986.
Based on asset size, Director compensation at the largest REITs (greater than $6 billion in assets) is about twice as much as it is for those at the bottom (less than $1.5 billion in assets), and 25% to 35% more than at those companies in the middle range based on asset size. While all companies with total assets in excess of $1.5 billion split pay relatively equally, with a slight emphasis on cash compensation, REITs at the bottom weigh cash compensation more heavily, paying less than 30% of total remuneration in equity.
About the Study
The Steven Hall & Partners REIT Director Compensation Study analyzed the most current proxy data available on 103 public Real Estate Investment Trusts. The Study assumed that a Director either served as a Chair of one committee and a member of one other or served solely as a member of two committees. All stock valuations are based on the 2009 meeting date stock price. Contact Steven Hall & Partners at 212-488-5400 or firstname.lastname@example.org to request additional details regarding the study.