REITs Executive Compensation Guide

Clawback Provisions Clawback provisions provide for the recoupment of incentive compensation paid to executives under certain conditions. Section 304 of the Sarbanes-Oxley Act (“ SOX ”) authorized the SEC to seek the recoupment of incentive compensation from the CEO and CFO if the company is required to prepare an accounting restatement as a result of misconduct. Since the adoption of SOX, many public companies, including approximately 72% of listed REITs, have adopted their own clawback provisions that would allow for the company to recoup incentive compensation above and beyond the SOX conditions. Company-adopted clawback policies generally apply to executives beyond the CEO and CFO, and triggering events vary from any accounting restatement regardless of misconduct to misconduct even without an accounting restatement. See “Recent Developments — New Incentive Compensation Clawback Rules” above. Hedging and Pledging Policies Anti-hedging and anti-pledging policies are governance provisions that prohibit executives from hedging or pledging shares of the company’s stock. Anti-hedging policies prohibit executives from entering into short sales or derivative transactions to hedge their exposure to fluctuations in the company’s stock price. Anti-pledging policies prohibit executives from using shares as collateral for a loan or holding company shares in a margin account. Some companies also use partial anti-pledging or anti-hedging policies that allow executives to pledge or hedge shares with the approval of a board committee. REITs that adopt anti-hedging and anti-pledging policies often extend these policies to directors and non-executive employees. Following the finalization of the hedging disclosure requirements under the Dodd-Frank Act, public companies must disclose any hedging practices or policies in their annual proxy or information statements. Many public companies, including public REITs, already disclose their hedging policies in their proxies, with only three of REITs allowing insiders to engage in hedging transactions with board approval.

Governance Policy Prevalence

100

93%

80

56%

60

40

25%

20

3%

0

Anti-Hedging Policy

Anti-Pledging Policy

Partial Anti-Pledging Policy

Partial Anti-Hedging Policy

Equity Ownership Guidelines Equity ownership guidelines are adopted by companies to promote ownership of company shares to further align executives’ interests with those of stockholders. Ownership guidelines require executives to maintain a certain level of ownership of the company’s shares at any point in time, usually expressed as a multiple of the executive’s base salary. To reduce the burden of achieving the prescribed ownership levels, companies often provide a grace period (typically five years) during which the executive can accumulate ownership. In addition, companies can also require that executives retain a certain percentage of any equity granted as compensation until the ownership requirements are met. Equity ownership guidelines also frequently apply to a company’s non-employee directors. Companies often allow for unvested time-based restricted shares, common OP Units and/or LTIP units to count towards satisfying ownership guidelines. Equity ownership guidelines are prevalent among REITs, with approximately 91% of REITs having ownership guidelines in place and almost half of those REITs requiring executives to retain equity awarded to them until the ownership requirements have been met.

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