REITs Executive Compensation Guide

Companies will often engage outside advisers to assist with the preparation of the CD&A, including legal counsel, compensation consultants and proxy design firms. The compensation committee of the board of directors should also be involved in the preparation of the CD&A, reviewing and consulting on drafts and recommending that the board include the final CD&A in the company’s proxy statement. The SEC’s rules require that a company provide a “Compensation Committee Report,” which discusses whether the compensation committee has reviewed the CD&A, discussed the CD&A with management and recommended to the board of directors that the CD&A be included in the proxy statement. The rules also require the company list the names of each member of the compensation committee below the Compensation Committee Report. See “Compensation Committee Report” below. PRACTICE POINT: : Assign a CD&A “Quarterback.” Although it may be difficult for one person within a company to draft the entire CD&A, it is advisable to have one person appointed as the CD&A “quarterback” who can coordinate the drafting, reviews and comments across the groups within the organization and with outside advisers. Companies must carefully consider the manner in which the CD&A is presented to ensure that it effectively explains the company’s executive compensation philosophy, policies and practices and decision-making. For this reason, it is important for companies to utilize a plain English writing style and to employ, where appropriate, charts and graphs that demonstrate key points, such as the relationship between pay and performance. The ultimate goal of the disclosure is to provide investors with meaningful insight into how the company made its compensation decisions in the last fiscal year. Boilerplate language or quotes from company policies or employee agreements are generally not appropriate; instead, companies should discuss how and why they arrived at specific compensation decisions, including identifying the goals of the compensation program, as well as the reasons for individual awards to NEOs and how those awards fit into the overall compensation objectives.

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