2018 Say-on-Pay Recap for the REIT Industry
Support for Say-on-Pay proposals tapered off in 2018, resulting in a more challenging year for REITs regardless of the voting recommendations of proxy advisory firms, such as ISS. Between 2015 and 2017, Say-on-Pay proposals in the REIT industry experienced a pattern of increasing support, but in 2018, that trend reversed. Despite lower support at self-managed REITs, externally-managed REITs were able to buck the trend due to increased compliance with ISS disclosure guidelines.
Key 2018 Say-on-Pay Highlights
- Decline in Say-on-Pay Support – Shareholder support decreased for both REITs and the general industry.
- Incentive Compensation Criticism – ISS was more vocal of its disapproval of certain incentive compensation features, including target payouts if TSR is negative (notwithstanding relative performance) and target payouts for relative performance at the median.
- Limited Impact of the Financial Performance Assessment (FPA) – The newly-added FPA test had a minimal impact on ISS Say-on-Pay voting recommendations, with only one REIT that received a negative voting recommendation from ISS adversely affected (shifting from a “Low” to “Medium” concern as a result of the FPA).
- More Active Shareholder Voting – Institutional investors are becoming less reliant on the voting recommendations of proxy advisors, even at companies with positive ISS voting recommendations, signaling to companies the need for active engagement with shareholders and transparent compensation disclosure.
While overall Say-on-Pay support decreased among the Russell 3000, self-managed REIT results fared worse than the overall market:
- The number of self-managed REITs with negative ISS voting recommendations increased at a higher rate than companies in the Russell 3000 (a 4.1% increase from 2017 to 2018, compared to an increase of 1.4% for the Russell 3000)
- Average support decreased more significantly for self-managed REITs (down 2.4% from 2017 to 2018, compared to a 1.3% decline for the Russell 3000)