REITs Executive Compensation Guide

Formulaic Bonuses Formulaic bonuses continue to be the most commonly utilized plan design for REITs, with approximately 80% of REITs utilizing a formulaic cash bonus program. However, the use of entirely formulaic bonuses has been steadily decreasing since 2016, as REIT boards look to balance quantitative metrics with operational and strategic priorities that may not be quantifiable, including certain ESG-focused metrics.

Bonus Plan Structure

2021

2020

80

68%

67%

60

40

20%

18%

20

15%

11%

0

Entirely Discretionary

Entirely Formulaic

Formulaic with a Subjective Component

There has been an increased focus on goal setting from proxy advisory firms, with a particularly high focus on REITs with declining profitability. For REITs that lower the bonus plan performance targets, disclosure of the goal-setting rationale is all the more important, as ISS guidelines state that a “clear disclosed rationale for lowered financial performance targets” is necessary. Rigor of performance goals (for both cash and equity incentives) was a contributing factor for more than half of the self-managed REITs that received a negative Say-on-Pay vote recommendation. See “Stockholder Advisory Votes on Executive Compensation—Say-on-Pay.”

11 | 2023 Guide to REIT Executive Compensation