“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,” said Hanks. “After that, it’s important that the compensation committee run the process as much as possible and be perceived as running the process.” Hanks added that compensation committees and their independent consultants should be “intensely focused” on the consultants’ opinions on the likelihood of their plans being approved. “I would encourage compensation committees to really get the consultants to go on the line” and state that the compensation plan will receive a favorable vote.
Hanks also discussed some 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 results 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 does not meet certain expectations, Hanks said that the compensation committee and the board should present it and promote it if they think it is “the right plan for this company and this group of executives at this time.”
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