PRACTICE POINT: For REITs that lower the bonus plan performance targets, it is particularly important to disclose the goal-setting rationale and the reason for the adjustment, as there has been an increased focus on goal setting from proxy advisor firms, particularly for REITs with declining profitability. ISS guidelines state that if such adjustments materially increase incentive payouts, companies should provide clear disclosure in the proxy explaining the nature of the adjustment, it’s impact (dollar or percentage) on payouts, and the board’s rationale. While not often followed, ISS also recommends, as a best practice, disclosure in the proxy of line-item reconciliation to GAAP results, when possible, and goes on to note that the absence of these disclosures would be viewed negatively, as would adjustments that appear to insulate executives from performance failures—particularly for companies that exhibit quantitative pay for performance misalignment. It is worth noting that the rigor of performance goals (for both cash and equity incentives) was a contributing factor for a significant number of the self managed REITs that received a negative Say-on-Pay vote recommendation in 2024. See “Stockholder Advisory Votes on Executive Compensation—Say-on-Pay.” Formulaic Bonuses Formulaic bonuses continue to be the most commonly utilized plan design for REITs, with approximately 90% of REITs utilizing a formulaic cash bonus program. However, the use of entirely formulaic bonuses has been steadily decreasing since 2016, as REIT boards look to balance quantitative metrics with operational and strategic priorities that may not be quantifiable, including certain metrics focused on environmental, social, and governance (“ESG”) matters. Bonus Plan Structure Entirely Discretionary Entirely Formulaic Formulaic with a Subjective Component 0 20 40 60 80 2022 2023 9% 9% 73% 11% 11% 76% 7 | 2024 Guide to REIT Executive Compensation
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