FPL Associates L.P.: Proxies Reveal Real Estate Compensation Growth Flat Amidst Mixed Performance

FPL Associates L.P. has completed its sixth annual Top 100 Analysis, based on the proxy filings of the 100 largest publicly traded real estate companies as measured by equity market capitalization (the “Top 100”). This study is the first of its kind within the industry to analyze year-over-year compensation trends for only those executives who have remained employed in the same position between years, in order to provide an accurate trend analysis. Key findings across four executive positions (CEO, COO, CFO, and General Counsel) include:

* Executive base salaries increased 7.3%, on average
* Cash bonuses increased 9.6%, on average, over 2006 levels
* Long-term equity award grant value decreased by 3%, on average
* Total remuneration was essentially flat (-0.3%) across all four positions, in aggregate

Performance experienced in 2007 (on which 2008 incentives are predominantly based) was wide ranging, largely dependent on the specific criteria utilized to measure such performance. The FTSE/NAREIT Index was down 15.7%, marking the first year in which the industry had negative returns and underperformed broader market indices since 1999. Operationally, however, bottom-line fundamentals were generally strong, as FFO per share growth nearly reached double digits industry wide.

“As compared to prior years, Compensation Committees generally spent a longer period of time deliberating the levels of bonus payments given the disparity in performance measured by shareholder value creation and bottom-line financial/operational results,” remarked Jeremy Banoff, Managing Director of FPL Associates.

Executive Compensation Effectively Flat

FPL’s executive compensation analysis is based on compensation reported for the CEO, COO, CFO, and General Counsel positions at the Top 100. This year’s analysis marked the first time in which compensation decreased across all four positions, albeit quite modestly at -0.3%. However, in further examination of individual positions, 2007 median total remuneration for the CEO position decreased 10%, while median total remuneration rose 4%, 13%, and 6%, for COO, CFO, and General Counsel positions, respectively, over the levels reported for 2006.

Financial and operational metrics (including FFO per share growth, same-store NOI growth, occupancy levels, etc.) typically comprise a meaningful portion of the annual incentive or cash bonus opportunity. The year-over-year analysis found that annual incentives for the CEO position decreased 3%, while cash bonus compensation increased 15%, 28%, and 23%, for COO, CFO, and General Counsel positions, respectively. “The aggregate annual incentive increase of 9.6% across all four positions effectively mirrors the same level of FFO per Share growth across all companies,” said Banoff.

As in years past, the most significant contributor to total compensation for executive teams was in the form of a long-term incentive (typically linked to total shareholder return). Based on FPL’s Analysis, the only compensation component amongst base salary, annual incentive, and long-term incentive to decrease was the equity component, which experienced a slight drop in value across the top-level executive positions by approximately 3%. However, this component represents the most significant portion of an executive’s overall level of compensation, and as such, has a meaningful impact total remuneration.

“As a whole, the public real estate industry has consistently been ranked as having superior corporate governance practices, and in terms of the compensation aspect of governance, performance year 2007 was perhaps the first true test of pay-for-performance given last year’s mixed performance results,” notes Banoff. “Given that compensation was effectively flat between years suggests a strong correlation of pay-for-performance when factoring in both the strong financial/operational performance and the weaker performance in total shareholder returns.”

Board Compensation Stabilizes

Major changes in director compensation have occurred over the past several years, with median total compensation for board members more than doubling, from $45,575 in performance year 2002 to $107,600 in performance year 2007 (a compounded annual rate of 19%). In comparison to last year, median total compensation increased by only 6.7% in 2007. This magnitude percentage change represents the smallest increase in board compensation seen since Sarbanes-Oxley was implemented in 2002. Furthermore, for the first time in the history of FPL’s Analysis, performance year 2007 marked the first year in which board compensation increased by less than 10%.

“For a variety of reasons, board compensation for non-employee/independent directors has increased at a significant pace over the past five years, more than doubling. While performance year 2007 marks the sixth consecutive year in which board compensation has increased, these figures are now starting to stabilize,” notes Banoff.

About the Top 100 Proxy Analysis

This year’s analysis is based on proxy statements released in 2008, which are reflective of 2007 compensation data. It should be noted that due to stock price fluctuations, mergers and acquisitions, and privatizations, the companies comprising the Top 100 vary from year to year. However, in order to arrive at a direct comparison between years, FPL only utilizes those companies and executives that remain consistent between years.

For more information, please contact Jeremy Banoff at (312) 368-5088 or jbanoff@fplassociates.com. Website: http://www.fpladvisorygroup.com/