REITs Executive Compensation Guide

Only a limited number of REITs use stock options or stock appreciation rights (“ SARs ”), with the utilization of these awards steadily decreasing due to a number of factors, including (i) the fact that dividends or dividend equivalents generally are not paid on these awards (and dividends represent a meaningful component of REIT value creation) and (ii) Institutional Shareholder Service (“ ISS ”) generally does not consider these equity vehicles to be performance-based unless vesting depends on the attainment of specified performance goals or they are granted significantly out-of-the-money.

Type of Equity Vehicle

2021

2020

100

88% 87%

87%

85%

80

60

40

20

8% 10%

6% 6%

0

Time-Vested Shares

Backward-Looking Performance Shares

Forward-Looking Performance Shares

Stock Options/SARs

See “Key Terms of Equity Incentive Plans and Award Agreements” below.

PRACTICE POINT: Accounting treatment for equity awards varies with award type and performance factors. In general, time-based awards receive fixed equity accounting treatment that is valued at fair market value on the date of grant (with no subsequent adjustments except for forfeitures). Depending on the type of metrics that are used for performance-based equity, these awards may have fixed equity accounting treatment if the award is subject to a market-based vesting condition (such as total stockholder return) or variable equity accounting treatment if the award is subject to company financial or operational performance conditions (fair value is set on the date of grant and the number of shares expected to be earned is subject to quarterly adjustment). The accounting treatment should be considered when REITs evaluate any plan design changes. As an added factor, some awards (including time-based awards) are subject to additional accounting discounts for certain features, such as illiquidity discounts for post-vest holding periods or book-up risk.

2023 Guide to REIT Executive Compensation | 8