"We asked them questions about what the numbers really mean, what was behind the compensation decisions," Anthony Saitta, managing director at SMG, tells GlobeSt.com. Putting it into perspective, Saitta notes that just a few months ago, "people were concerned about survival. Stock-market valuations were looking at companies and basically valuing them as if they were going to go under."

Specifically, the SMG study shows that cash bonuses for REIT officers decreased "at the median" by 10%, but ranged from 15% increases at healthier REITs to decreases of over 50% at those with liquidity and operational performance concerns. The study says the equity component of annual bonuses experienced even more significant declines of about 30% at the median, with decreases ranging from flat, to declines of over 60%.

Compensation committees generally reduced total compensation levels, "with the largest impact being to long-term incentive awards, as a result of depressed stock prices," says SMG. For example, the median decline for CEOs' cash bonuses was 8%, while the median decline for CEOs' equity bonuses was 30%. Saitta explains that long term incentives entail common stock, stock options and whether it's time-based investing.

Overall, Saitta says, "People were really starting to look at what they had on the balance sheet and what management had been doing over the past few months. Had they been extending credit lines; had they been refinancing; had they been pushing out maturities; what were they doing to manage that risk?"

While annual bonuses for CEOs experienced a median decline of 26%, the median decline for total compensation was only 13%. While equity compensation fell on average by around 30%, the MSCI REIT Index dropped by nearly 38%, SMG says.

Saitta says that in the midst of the market meltdown, there were in fact a lot of well-performing, well-managed companies, regardless of whether their stock valuations reflected that. And, in those cases, compensation did go up a bit, he says.

He adds that although compensation decisions come annually, there's the catch of earning it, and then keeping it, and "that's a longer-term proposition for the management team. As for 2009," he says, "I don't think you're going to see the same kinds of decreases going forward for this year."

However, "that could all change over the next four months," Saitta notes, pointing out proposed SEC and Congressional regulation. For example, the SEC's proposed "Proxy Disclosure and Solicitation Enhancements" rule, if enacted, would amend regulations affecting "overall compensation policies and their impact on risk taking; stock and option awards of executives and directors; director and nominee qualifications and legal proceedings; company leadership structure; the boards role in risk management process; and potential conflicts of interest of compensation consultants that advise companies."

Looking forward, Saitta says, "People are going to be focused on the risk/reward tradeoff for management, a lot more focused on disclosing the risk and how the board and management are valuing them, making decisions and tying that back to compensation."

Instant Insights /

Study: REIT Execs Take Hit on Bonuses

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