Market View
(continued from page 15)
within the public real estate marketplace increased by 10 percent across the executive
team, in aggregate. The median level of CEO
pay was approximately $4.8 million, with approximately 15 percent comprising base salary and the remaining 85 percent in the form
of incentives—both cash and equity. Other
key executives—including COO, CFO and
general counsel—had median pay levels of
$2.4 million, $1.8 million and $1.3 million,
respectively. Not only did company performance increase across years but the median
size of companies within the top 100 largest
REITs also increased substantially, from $4.9
billion in 2013 to $6.5 billion in 2014.
Comings and Goings
Separate from the levels of pay observed,
perhaps an interesting finding is the amount
18
July 2015 | Commercial Property Executive
of executive turnover across the top 100
public REITs.
Across all publicly disclosed
executives within the study, there was a
7 percent turnover rate, which marks the
highest level since the financial crisis in
2008. Twenty-eight percent of companies
had at least one executive change between 2013 and 2014. Based on a closer
examination of these shifts, there seem to
be multiple reasons for executive change,
including retirement, departure for “person-
al reasons” (which often can be tied to a
termination without cause), changes in an
executive team following the hire of a new
CEO, and departures from one company to
go to another.
Finally, public REITs fared well during
the 2015 proxy season, in which only one
public REIT failed the “Say-on-Pay” vote
(a significant reduction from the five REITs
that failed the year prior).
Highly influential
proxy advisory firm Institutional Shareholder
Services (ISS) strongly supported compensation proposals relating to Say-on-Pay, in
which 2015 marked the lowest amount of
“against” vote recommendations since it
was instituted.
The private sector, which is immune to
public investor scrutiny and disclosures,
also experienced new-high pay levels
across key executive roles. Larger firms
in the real estate investment management
and private equity sectors continue to raise
disproportionate (outsize) amounts of capital, which has an impact on annual fee income and bonus pools. Smaller shops
have been very successful as long as they
have a solid track record and distinguished
strategy.
The midsize firms, generally
speaking, are the ones that face some
challenges, and compensation payouts
have not maintained the same pace,
although they are still healthy, historically speaking. Separately, debtfocused or originations platforms
have performed very well,
with the highest volume
and profits observed
since the market downturn.
Both factors contributed to hefty
bonus payouts.
Retention has been
a central theme over the
past couple of years, as real
estate has performed well.
With record inflows and capital
raising, there has been a need for
transaction-oriented professionals to put
money to work. Companies are also looking to the next generation as part of both
their retention and succession planning
strategies.
But a firm’s history, reputation,
growth strategy and career opportunity will
often overcome the financial rewards. To remain competitive, retain existing talent, and
attract from the outside, companies should
revisit their total rewards strategy, in which
pay is just one of many elements.
—Jeremy Banoff is senior managing director
for FPL Associates L.P.
Image by sax/iStockphoto.com
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