CPN - January 2009 - (Page 14) WHAT THEY’RE EARNING CEO Seeking Value Dollars in Millions $5.0 $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 '06 '07 '08* Large Public REITs *estimate for compensation as a whole Long-Term Incentives Annual Incentives Base Salary R etention is less of a concern now than during better times, but U.S. commercial real estate companies are nonetheless sensitive to the need to reward and motivate deserving employees.Thus, firms are struggling to find the right balance between compensation that is appropriate for their executives and rewards that do not impact the company’s performance requirements, noted FPL Associates L.P. managing director Jeremy Banoff. Investment management is the most stable sector, as most of those firms anticipate continued steady revenue from asset management feeds.Thus, base salaries and cash bonuses both should remain stable relative to bonuses at other types of companies, noted senior director Josh Anbil. Declining return expectations for recent investments and uncertainty regarding current investments are likely to present a challenge with respect to long-term incentives. The struggle,he explained:“Leave parameters unchanged and you run the risk of losing senior talent if new, lower levels of compensation are not enough to keep them. On the other hand, if you adjust the parameters for eligibility and utilize a less inclusive approach, for example, then you may push away rising stars and more junior employees, which impacts your bench strength.” Private developers have been hit harder, thanks to their inability to obtain financing and/or sell assets right now. Anbil predicted a “fair approach” to base salaries: executive salaries remaining flat and lowerlevel employees possibly receiving increases that are modest though more aligned with historical averages than the higher increases of recent years. Bonuses, on the other hand, will be reduced, though that will not show up until next year, given the time frame required for such compensation to be awarded. Finally, at public REITs, long-term incentives will likely fall in conjunction with stocks and profits, Banoff noted.Total shareholder returns were down 50 percent as of early December, following last year’s negative 15 percent. “Companies are just trying to get through quarter by quarter,” he said When delineating future bonus structures, Banoff noted, compensation committees are likely to pay closer attention to performance metrics, balancing both subjective and objective factors, including comparisons to prior years and to the marketplace. '06 '07 '08* Private Real Estate Companies '06 '07 '08* Large Investment Managers CFO $3.0 $2.5 Long-Term Incentives Annual Incentives Base Salary Dollars in Millions $2.0 $1.5 $1.0 $0.5 $0.0 '06 '07 '08* Large Public REITs *estimate for compensation as a whole '06 '07 '08* Private Real Estate Companies '06 '07 '08* Large Investment Managers COO $3.5 $3.0 Long-Term Incentives Annual Incentives Base Salary Dollars in Millions $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 '06 '07 '08* Large Public REITs KEY COMPONENT (real estate investment company returns from 2006 to 2008) 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Private Public *estimate for compensation as a whole '06 '07 '08* Private Real Estate Companies '06 '07 '08* Large Investment Managers 2006 2007 2008 Sources: FTSE NAREIT US Real Estate Index Series (Annual return as of Nov. 30, 2008) National Council of Real Estate Investment Fiduciaries (Annual return as of Dec. 10, 2008) Compensation Methodology Compensation data represents the median statistics of a relevant peer group of real estate companies. The three main components include: s Long-Term Incentives: For public companies, awards corresponding to the performance year (i.e. ’07 = equity grants paid for performance year 2007) but that were most likely awarded early the following year (i.e. 2008). s Annual Incentives: awards corresponding to the performance year (i.e. ’07 = bonuses paid for performance year 2007) but that were most likely paid out early the following year (i.e. 2008). Typically, such awards are cash based, but they may take other forms. s Base Salary: base salary for the year indicated. It should be noted that because the companies that comprise each market segment have changed between years, direct comparisons between 2006 and 2007 might not be appropriate. Given the recent market turmoil, FPL Advisory Group has projected 2008 compensation (i.e. bonuses paid in early 2009) based on market knowledge and proprietary surveys conducted by FPL Associates L.P. 14 COMMERCIAL PROPERTY NEWS • January 2009 • www.cpnonline.com http://www.cpnonline.com
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