REITs Executive Compensation Guide

Stock Exchange and SEC Independence Rules Rule 10C-1 of the Exchange Act The SEC is particularly concerned with the independence of, and resources available to, a company’s compensation committee. Rule 10C-1 of the Exchange Act (“ Rule 10C-1 ”) requires the national securities exchanges to adopt and enforce rules concerning compensation committee independence and the compensation committee’s ability to engage external advisers, such as compensation consultants. Rule 10C-1 prohibits securities exchanges from initially listing or permitting the continued listing of companies that are not in compliance with Rule 10C-1 and the related rules adopted by the NYSE and Nasdaq. Rule 10C-1 requires that all members of the compensation committee be independent members of the board of directors. Relevant factors in determining independence include (i) the source of compensation of the committee member, including any fees paid by the company, and (ii) whether the committee member is an affiliate of the company, a subsidiary of the company or an affiliate of a subsidiary of the company. Additionally, a company’s compensation committee must have the autonomy to engage an independent compensation consultant, independent legal counsel or other adviser. The compensation committee, rather than the company or its board of directors, must be responsible for the appointment, oversight and compensation of the adviser. Rule 10C-1 also requires public companies to provide reasonable funding (as determined by the compensation committee) to pay the compensation committee’s independent advisers. Rule 10C-1 enumerates certain factors to consider in their totality when assessing the independence of advisers, including the following: ■ the provision of other services to the company by the person that employs the compensation consultant, legal counsel or other adviser;

■ the amount of fees received from the company by the person that employs the compensation consultant, legal counsel or other adviser, as a percentage of the total revenue of the person that employs the compensation consultant, legal counsel or other adviser; ■ the policies and procedures of the person that employs the compensation consultant, legal counsel or other adviser that are designed to prevent conflicts of interest; any business or personal relationship of the compensation consultant, legal counsel or other adviser with a member of the compensation committee; ■ any shares of the company owned by the compensation consultant, legal counsel or other adviser; and ■ any business or personal relationship of the compensation consultant, legal counsel, other adviser or person employing the adviser with an executive officer of the issuer. In recognition of the extensive independence requirements each member of the compensation committee must satisfy, the SEC instructs the stock exchanges to provide companies an opportunity to cure defects in independence prior to delisting a company’s securities. If a compensation committee member fails to satisfy the independence requirements for reasons outside their control, the company will have until the earlier of the next annual stockholder meeting or one year from the occurrence of the event impacting independence to find a new independent member or affirmatively determine that the member has been able to regain independence. ■

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