REITs Executive Compensation Guide

NYSE The board of directors of each company listed on the NYSE must annually make an affirmative determination that each member of the compensation committee does not have a material direct or indirect relationship with the company that would impair independence. In determining independence, the board “must consider all factors specifically relevant to determining whether a director has a relationship to the listed company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member.” 10 The two factors enumerated in the NYSE-listed company manual to determine independence are identical to the factors required to be considered pursuant to Rule 10C-1. The NYSE explains that the board of directors should not only look at the director’s affiliation with the company, but also any other organizations with which the director may be affiliated. The NYSE-listed company manual expressly states that stock ownership in the company alone does not bar a determination that a director is independent. Companies are encouraged to consider any compensation the director receives from a person or entity that may impair their ability to make independent judgments regarding executive compensation. Additionally, any affiliations with individuals or organizations that put the director in a position of control over, or create a relationship with, the company or senior management may preclude the board of directors from determining that such committee member is independent.

Nasdaq Each company listed on Nasdaq must have an independent compensation committee comprised of a minimum of two members 11 . Members of the compensation committee must not be executive officers or employees of the REIT and may not have any relationships that “would interfere with the exercise of independent judgement in carrying out the responsibilities of a director.” For purposes of compensation committee member independence specifically, Nasdaq adopted the Rule 10C-1 independence standard as one of the factors the board of directors must consider in connection with the board of directors’ independence analysis. Nasdaq’s overarching guidance is that the board of directors “must consider all factors specifically relevant in determining whether a director has a relationship to the company that is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member.” 12 Nasdaq has adopted the Rule 10C-1 rules regarding engaging and funding of compensation committee advisers. Nasdaq-listed companies are also granted the Rule 10C-1 cure period to resolve independence issues of committee members, with the addition that, if the annual stockholder meeting is 180 days or less from the date a member failed to satisfy with the independence requirements, the company will have 180 days to re-gain compliance.

10 See NYSE Listed Company Manual Rule 303A.02 (ii). 11 The Nasdaq listing standards for compensation committees provides that, if the compensation committee is comprised of at least three members, then, under exceptional and limited circumstances and subject to certain conditions, one director who is not independent (and not an executive officer of the company or family member of an executive officer) may be appointed to the compensation committee if the board of directors determines that the appointment of a non-independent member to the compensation committee is required by the best interests of the company and its stockholders. 12 See Rule 5605(d)(2)(A) of the Nasdaq Listing Rules.

2023 Guide to REIT Executive Compensation | 28