REITs Executive Compensation Guide

Bucket v. Discrete Metric ESG metrics can be incorporated into incentive plans as either (i) a “bucket” in the corporate scorecard that may include several ESG metrics and/or may be part of an overall strategic category, or (ii) discrete weightings for each ESG goal in the incentive plan. Some REITs utilize a hybrid approach that includes an ESG scorecard with specific categories, goals and assigned weightings for each ESG goal. ESG metrics should be linked to the company’s broader business strategy. Many companies may adopt more subjective metrics while their ESG strategy is in its earliest stages of development and transition to objective goals when ESG targets become more tangible. While the majority of REITs utilize either a subjective corporate or individual goal related to ESG, there continues to be a push for transparency and accountability through the incorporation of specific, measurable goals. The following reflects the types of objective ESG goals that are most commonly utilized in short-term incentive programs: Objective v. Subjective Metrics Like other metrics used for compensation purposes,

Objective

Subjective

Both

12%

18%

70%

100

78%

80

60

50%

50%

39%

40

20

0

Environmental

DE&I

Employee Engagement / Health & Safety

Third Party Governance Rating/Score

Messaging and Disclosure Given that transparency is a core tenet of ESG, companies should be prepared to clearly articulate how and why the particular metrics were selected, why those metrics are compatible with the company’s business model and its ESG priorities, and how performance will be measured (for objective measures) or assessed (for subjective measures).

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