REITs Executive Compensation Guide

from the company and disclosure regarding such response in the company’s proxy statement the following year, including the company’s engagement with stockholders regarding their concerns and actions taken to address the issues that led to the low level of support. If a company has not demonstrated adequate responsiveness, proxy advisory firms may recommend voting against the Say-on-Pay vote and incumbent compensation committee members the following year. Say-on-Pay Results Overall, average Say-on-Pay results for all REITs has declined slightly since 2018. While average Say-on-Pay support for REITs that received a positive voting recommendation has remained more consistent over the past several years (at approximately 93-94%), average support for all REITs has declined from approximately 91% in 2018 to 88% in 2022 (the lowest average support since 2013). The guarantee of +90% stockholder support with a positive ISS voting recommendation is fading as institutional investors and stockholders are relying more on their own due diligence, and, in some cases, institutional voting guidelines, rather than ISS. This is evidenced by the overall decline in stockholder approval for REIT Say-on-Pay proposals, and in the number of REITs failing their Say-on Pay proposals relative to the number of “against” voting recommendations. In 2022, more REITs received “Against” recommendations, with five REITs receiving less than 50% support for their Say-on-Pay proposals, compared to seven in 2021.

Companies are not required to use any specific language in asking for stockholder approval. Instead, each company has the flexibility to craft the exact language of the non-binding resolution that its stockholders will vote on, subject to the requirement that the resolution clearly identify that stockholders are being asked to approve the compensation of the NEOs. It is not uncommon for a company to accompany its Say-on-Pay proposal with a disclosure highlighting the components of the company’s compensation policies and practices that tend to demonstrate a strong alignment of interests with stockholders, including NEO compensation that is tied to the achievement of quantitative performance objectives. In addition, many companies engage in regular communications with their largest stockholders to ensure that concerns regarding the compensation of the company’s NEOs are addressed prior to making compensation determinations. Although the Say-on-Pay vote is non-binding, boards of directors (and particularly members of the board’s compensation committee) that elect not to address concerns with respect to NEO compensation after a company receives only modest support or a majority against the NEOs’ compensation do so at their peril. In particular, stockholders and proxy advisory firms may view the board’s decision not to engage with stockholders as an indication of the board’s indifference to stockholder concerns, which could adversely affect stockholder support for certain director nominees in subsequent years. Additionally, if a Say-on-Pay vote receives only modest support (70% according to ISS, 80% according to Glass Lewis), proxy advisory firms expect a robust response

Average Say-on-Pay Support

Externally Managed REITs

Self-Managed REITs

100

91.4%

91.0%

90.7%

89.9%

86.9% 88.7% 88.7%

86.2%

83.5%

83.4%

80

60

40

20

0

2018

2019

2020

2021

2022

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