REITs Executive Compensation Guide

Proxy Statements

Disclosure Requirements

Compensation Discussion and Analysis (“CD&A”) The CD&A is the discussion and analysis of a company’s executive compensation policies, practices and decision-making with respect to NEOs that accompanies a company’s tabular executive compensation disclosure. 16 The CD&A must include material information about a company’s executive compensation program, and it is similar in concept to Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “ MD&A ”). The two reporting requirements serve similar objectives, in that the MD&A is meant to provide a discussion and analysis of the data in a company’s financial statements through the eyes of management, while the CD&A is meant to provide a discussion and analysis of the data in a company’s tabular compensation disclosures, largely though the perspective of the company’s compensation committee. Both disclosure requirements seek to provide context for the quantitative information that is reported to investors. The CD&A should not merely be a narrative of the information that is provided in the tabular disclosure. The Staff has emphasized that companies should focus in particular on the “analysis” portion of the CD&A. In this regard, the CD&A should avoid over-reliance on boilerplate language or recitations of company policies, and should instead focus on the compensation committee’s decision-making process when considering and determining executive compensation. More specifically, the CD&A is meant to provide investors with transparency regarding the factors used in making compensation decisions and how those factors were specifically applied to the company’s NEOs.

A brief summary of proxy statement disclosure requirements is presented below. This discussion is meant to give a high-level overview of the requirements, but it is not meant to be comprehensive. Companies should consult with legal counsel when making certain determinations and when preparing the tables and related narrative and footnote disclosures. Determination of Named Executive Officers Information for a company’s NEOs must be included in CD&A and the required compensation tables. A company’s NEOs are its principal executive officer, principal financial officer and the three other most highly paid executive officers of the company; however, smaller reporting companies and emerging growth companies are afforded relief in the form of scaled disclosure requirements, and, for those issuers, the NEOs are limited to the principal executive officer and the other two most highly paid executive officers. A company, other than a smaller reporting company or emerging growth company, will need to include up to two additional NEOs in CD&A and the compensation tables if the individuals would have been among the three most highly paid executive officers, but for the fact that they were not serving as an executive officer at the end of the last completed fiscal year. The SEC defines “executive officer” as any president, vice president in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs policy-making function or any other person (including any employee of a subsidiary) who performs similar policy-making functions for the company. It is common for REITs to identify, each year, those individuals who are designated as executive officer.

PRACTICE POINT: Because the CD&A can be long, it is advisable to include an executive summary that summarizes key information about the company’s executive compensation plans, policies and practices, the company’s corporate governance practices with regard to executive compensation and the alignment of NEO pay with company performance.

16 See Item 402(b) of Regulation S-K. Smaller reporting companies and emerging growth companies are not required to provide a CD&A.

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