As proxy season approaches, expert takes issue with compensation analysis | FTI Consulting

As proxy season approaches, expert takes issue with compensation analysis

Real Estate | Tom Yeatts (SNLFinancial)

March 19, 2013

As 2013’s round of annual shareholder meetings approaches and the question of fair and just pay packages emerges once again, an industry observer is calling on the two leading proxy advisory firms to consider revising how pay-for-performance compensation itself is evaluated.

Anthony Saitta, who co-leads the executive compensation practice in FTI Consulting’s real estate solutions group, is taking issue with the time variable. A significant part of the quantitative side of Institutional Shareholder Services’ and Glass Lewis’ compensation analysis, before recommending that shareholders approve or reject a pay plan, involves comparing an executive’s performance with a peer group over one-year and three-year periods. The problem, Saitta says, is that real estate is a long-term business, with the value creation process having a longer time horizon than it does in other industries, like technology.

“If you think about the time period to build an asset, the time period it might take to acquire and redevelop an asset … You may have to buy out tenants. You may need to physically renovate the property or redevelop it so that you can lease it up to market,” Saitta told SNL. “It takes a longer period of time.”

Saitta likes the two firms’ methodology on the whole, which weighs performance on an absolute and relative basis. But he deems the relatively short time frame for analysis a misstep for real estate specifically. Lease terms alone often get in the way of one’s ability to quickly turn a building. The value-harvesting process on the private side, from fundraising to redeveloping to selling, he observed, is typically seven to 10 years.

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