Companies also will be required to provide an unranked list of the most important financial performance measures used by the company to link executive compensation actually paid to the company’s NEOs during the last fiscal year to company performance. Most companies disclosed three to six measures, with the most common metrics disclosed aligning with the most common metrics used in REIT short-term and long-term incentive plans. DETERMINATION OF COMPANY CUMULATIVE TSR AND PEER GROUP TSR Under new Item 402(v) of Regulation S-K, a company will be required to disclose the cumulative TSR of the company, which is to be computed in accordance with the requirements set forth in Item 201(e) of Regulation S-K. Item 201(e) of Regulation S-K sets forth the specific disclosure requirements for the company’s stock performance graph, which is required to be included in the annual report to security holders provided for by Rules 14a-3 and 14c-3 under the Exchange Act. Item 201(e) provides that cumulative TSR is calculated by dividing the sum of the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and the difference between the company’s share price at the end and the beginning of the measurement period, by the share price at the beginning of the measurement period. The new rules require a company to disclose weighted peer group TSR (weighted according to the respective companies’ stock market capitalization at the beginning of each period for which a return is indicated), using either the same peer group used for purposes of Item 201(e) of Regulation S-K or a peer group used in the CD&A for purposes of disclosing a company’s compensation benchmarking practices. If the peer group is not a published industry or line of business index, the identity of the companies composing the group must be disclosed in a footnote. A company that has previously disclosed the composition of the companies in its peer group in prior filings with the SEC would be permitted to comply with this requirement by incorporation by reference to those filings. Consistent with the approach specified in Item 201(e) of Regulation S-K, if a company changes the peer group used in its pay-versus-performance disclosure from the one used in the previous fiscal year, it will be required to include tabular disclosure of peer group TSR for that new peer group (for all years in the table), but must explain, in a footnote, the reason for the change and compare the company’s TSR to that of both the old and the new group. Nareit indices were the most common index chosen by REITs as their peer group. Among the Nareit indices, the Nareit All Equity Index was the most prevalent peer group (19% of all REITs). 22% of REITs used the MSCI US REIT Index, and 11% used a Dow Jones Index (i.e., Dow Jones US Hotel and Lodging, Dow Jones US Real Estate Office, etc.). 10% of REITs used their executive compensation or another custom peer group that ranged from 2 to 13 companies. Overall, most companies used a broad index (i.e., Nareit All Equity Index or MSCI US REIT Index) or an industry-specific index (i.e., Nareit Equity Shopping Centers Index or Nareit Equity Office Index). Comparator Group Chosen Nareit 53% MSCI 22% Dow Jones 11% Custom Group 10% Others 4% 49 | 2024 Guide to REIT Executive Compensation
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