REITs Executive Compensation Guide

Award Agreements Key items that are covered in award agreements include the following:

■ vesting conditions (e.g., number of years and rate of vesting, any performance conditions tied to vesting); ■ for performance-based awards, the particular performance criteria for vesting, including payout levels; and ■ severance-related provisions, including, but not limited to, change-in-control, “good reason” or “cause” definitions and the treatment of awards under certain termination scenarios (if not addressed in the underlying equity plan).

Types of Awards Restricted Stock

Restricted stock is a form of equity compensation that represents actual shares of stock that are subject to restrictions and risk of forfeiture until the vesting conditions have been satisfied. Restricted stockholders have voting rights and typically receive dividends as they are paid during the vesting period. The vesting period for restricted stock may cease at the end of the specified time period (i.e., cliff vesting) or in installments over the specified time period. In the REIT space, most restricted stock awards are time based-awards that vest ratably if the executive remains employed with the company as of the vesting date. Restricted Stock Units (RSUs) RSUs are similar to restricted stock awards, but instead of the participant receiving actual shares of stock, the participant receives a contractual right to receive shares of stock upon vesting or at a later date. Accordingly, because RSUs are not outstanding shares of stock, they do not come with voting rights or rights to receive dividends. Often, however, recipients of RSUs will receive dividend equivalent rights during the vesting period. Dividend equivalent rights entitle the recipient to receive credits equal to the distributions (e.g., cash or stock dividends) that would have been received if the underlying shares had been issued on the dividend record date. Subject to considerations under Section 409A, these rights may be settled at the time the dividends are paid to stockholders or may be settled once the RSU is settled.

PRACTICE POINT: Addressing severance-related vesting provisions (e.g., accelerated vesting upon a CiC and other termination scenarios) in award agreements gives REITs more flexibility to modify provisions as investor sentiment shifts without having to amend the entire equity plan.

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