REITs Executive Compensation Guide

Performance Metrics for REITs Incentive compensation is often based on an assessment of both qualitative and quantitative performance. Performance metrics relating to the quantitative assessment of performance vary based on the performance horizon, with short-term incentive compensation favoring operational metrics and LTI compensation favoring metrics relating to stockholder return. Qualitative and/or subjective metrics are usually added to incorporate strategic initiatives or individual performance into the incentive compensation program, particularly in the context of incentive programs that utilize ESG metrics (e.g., metrics tied to company culture, employee wellness, and diversity and inclusion). A majority of REITs utilize between three and five metrics in the cash bonus program in order to balance the simplicity of using too few metrics (which may motivate excessive risk-taking) and focusing management on key business objectives, although 19% of REITs use seven or more metrics.

Number of Cash Bonus Metrics

25

19%

19%

20

18%

18%

15

12%

10%

10

% of REITs

4%

5

0

1

2

3

4

5

6

7+

Number of Metrics

The most common performance metrics for REITs include same-property NOI, leverage FFO-based metrics 4 (including Core FFO and Adjusted FFO) and profitability metrics (e.g., EBITDA and EBITDAre). REITs should assess cash bonus metrics each year to ensure that they continue to align with the company’s short-term objectives and strategic plan.

4 FFO, or Funds from Operations, is a non-GAAP financial measure of a REIT’s performance. For more information about FFO, see our publication entitled “Frequently Asked Questions about Non-GAAP Measures for REITs.”

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