WASHINGTON, DC—Compensation for CEOs and other key REIT executives this year is expected to be more in line with the pay increases they saw in 2012 than with 2013's levels. For all executives concerned, that's probably a good thing, as compensation increases last year generally lagged those of the year prior, says FTI Consulting Inc.

Since most REIT compensation committees look to investor returns for directional guidance when making year-end compensation decisions, last year's executive compensation increases “reflected the fact that the REIT market was relatively flat in 2013, with the MSCI US REIT Index up only 1% for the year,” compared to 17.77% the year prior, says FTI's Anthony Saitta. Accordingly, total compensation levels for REIT executives increased within a range from 3% to 8% in '13, below the '12 increase range of 5% to 10%.

This year, the MSCI index is up once again, as are other broad-based indices that REIT boards use a metric for measuring performance. In the case of the MSCI index, it's 20%, while both the S&P 500 and the Russell 3000 have managed only single-digit returns year to date.

“If shareholder returns are an indication of compensation adjustments for senior executives, we anticipate that 2014 changes will be larger than in 2013 and closer to the 8% to 10% range,” says Saitta, managing director of the real estate & infrastructure practice and co-head of the executive compensation group at FTI. He adds, however, that “actual pay will be contingent on how the industry performs over the full year.”

FTI's 2014 REIT Executive Compensation study reports that CEOs experienced slightly larger increases last year: an average of 7%, while for senior executives across the board it was an average of 5%. This represented a shift from the first couple of years following the Dodd-Frank rule requiring say-on-pay votes by shareholders; accordingly, REIT compensation committees were more conservative. Upwards of 90% of SOP proposals have been approved by REIT shareholcers over the past couple of years, FTI's study found.

And while REIT executive salaries ticked upward last year, FTI's study found that the increases varied by sector. Median total compensation for healthcare REIT CFOs decreased by 4% from '12 to '13. Conversely, their counterparts at retail REITs saw their total compensation grow by a median of 10%.

Last year, Naitta says, “we saw REITs continue to modify executive compensation programs to better align with the preference of proxy advisory firms, as well as investors.” The result was “a decrease in the utilization of discretionary incentive awards and an increase in formulaic bonuses and at-risk performance-based equity.”

He adds that the largest proxy advisory firms have yielded “substantial influence and a sense of urgency among REITs to adjust compensation plans, within reason, to fit within their guidelines and models. That being said, more REITs have started to proactively engage with their largest shareholders so that a more customized compensation program can be adopted, while still being able to achieve a positive SOP voting outcome regardless of whether their compensation program fits within the one-size-fits-all proxy advisory model.”