Executive Compensation News and Views - 3rd Quarter 2013
2013 Say-on-Pay Recap
Flash: Congress Continues To Raise Concerns Over Executive Compensation
The 2013 proxy season has concluded in the REIT industry, and it has proven to be an eventful year. The 3rd annual Say-on-Pay (SOP) vote was again predominantly successful for REITs, although investors expressed more concern over REIT executive compensation programs than in either of the first two SOP votes. Key highlights of the 2013 SOP results include:
- More Failed REITs – In 2013, 6 REITS failed their SOP proposals, which is double the number of REITs that failed in 2012.
- Less Overall SOP Support – In 2013, 90% of shareholders in the aggregate voted in favor of REIT SOP proposals. While this still represents a significant majority of investors supporting REIT SOP proposals, it is a decrease from 2012, which had a 92% support level.
- More REITS Fell Below the 70% Support Threshold – ISS has designated 70% as the magic number that should trigger a company the need to engage with shareholders to better understand their concerns with the company’s executive compensation program. In 2012, 11 REITs fell below the 70% threshold and in 2013 that number increased to 19 companies.
- History Does Not Always Repeat Itself – Passing a SOP vote in any given year, even by a wide margin, does not always indicate that investors will respond positively the following year. Five out of the six failed REITS passed their 2012 SOP proposal, with an average support level of 77.8%.
Clearly investors’ scrutiny on pay practices is a new reality and has required public companies to devote a substantial amount of time and resources to executive compensation.