Governance Specialist Says Disclosure Key with Compensation
04/16/2014 | by Allen Kenney

Jim Hanks, partner with Venable, joined REIT.com for a video interview during REITWise 2014: NAREIT’s Law, Accounting and Finance Conference held in Boca Raton, Fla.

Hanks discussed some of the issues surrounding “say on pay” for REITs.

“First and foremost, a REIT, through its compensation committee, should design a good plan with the key emphasis being on pay for performance and whatever metrics it is that the compensation committee thinks will best promote pay for performance,” Hanks said. “After that, it’s important that the compensation committee run the process as much as possible and be perceived as running the process.”

Hanks also said compensation committees and their independent consultants should be “intensely focused” on the consultants’ opinions on the likelihood that their plans will be approved. “I would encourage compensation committees to really get the consultants to go on the line” and state an opinion that the plan will receive a favorable vote, Hanks said.

“Detailed, transparent” disclosure of compensation plans is another key, according to Hanks.

Hanks was asked about some of the potential pitfalls related to say on pay.

“To the extent that a [compensation] committee wants to depart from what is accepted industry practice, either in terms of the substance of the plan itself or the process by which the plan is arrived at or the disclosure, it should explain fully why it is departing in those regards,” he said. “In particular, to the extent that the [compensation] committee thinks there’s something differentiating about its company or its CEO or any of its named executive officers that result in some sort of departure from accepted substance and process, it should explain the differentiators fully so that the shareholders can appreciate why it is that the committee is recognizing something that may not be fully congruent with accepted practice. Finally, I think it’s very important for the [compensation committee] and the board to keep a sense of perspective. The ultimate goal of any REIT board is to act in the best interests of the company.”

Even if a compensation plan doesn’t meet certain expectations, they should present it if they think the plan is “the right plan for this company and this group of executives at this time,” according to Hanks.