PRACTICE POINT: If a modifier is used, the proxy statement should provide a clear disclosure of the modifier, achieved performance level, impact on payouts and the limitations that a modifier metric has on payouts (i.e., “may increase or decrease the total bonus payout by up to 15%”). Use of modifier metrics that allow for a significant increase in a payout or that contribute to an overemphasis on committee discretion, or failure to disclose the amount by which a payout can be increased by the modifier, may be viewed negatively by proxy advisory firms and could increase the likelihood of an adverse vote recommendation. ” Not all REITs have remained complacent in their LTI design, with more REITs conducting extensive reviews of their performance share plans as nonTSR metrics have gained traction. In particular, many REITs have been reviewing existing plans to ensure that the relationship between pay and performance is properly correlated. Scrutiny of LTI program design from investors and proxy advisory firms likely will become more pronounced as a result of the SEC’s pay-versus-performance disclosure rules (see “Pay-Versus-Performance”), which expressly require disclosure of the relationship between executive compensation and financial performance, including TSR. Accordingly, we have seen—and we expect to continue to see—more innovation in LTI design in the past several years, including time-based equity awards with added performance conditions to provide an upside for the achievement of operational, strategic and/or financial goals. LTI Modifier Prevalence 0 20 40 60 80 Absolute TSR Relative TSR Absolute & Relative TSR Other Operational Metrics 71.70% 15.09% 7.55% 5.66% 9 | 2024 Guide to REIT Executive Compensation
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