UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Welltower Inc.
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2017 Proxy Statement
Notice of Annual Meeting of Shareholders
March 20, 2017
DEAR FELLOW SHAREHOLDERS:
You are cordially invited to attend Welltowers Annual Meeting of Shareholders, which will be held at 9:00 a.m. Eastern Time on May 4, 2017 in the Bruce G. Thompson Auditorium at the Companys headquarters, located at 4500 Dorr Street, Toledo, Ohio 43615. Details regarding admission to the meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement.
I am honored to serve as your Chairman and feel incredibly proud to be a part of this remarkable company. Our Board diligently reviews the Companys strategy, challenges, capabilities and leadership to ensure the Company is well-positioned to continue creating value for shareholders. The independent directors and I are committed to, and value, our dialogue with our first-rate management team regarding the Companys disciplined portfolio review approach, capital allocation strategy and long-term plans for growth. I encourage you to read more about our Board, governance structures and practices, and compensation programs in the Proxy Statement.
Your vote is very important to us. Whether or not you plan to attend the Annual Meeting, we hope you will vote as soon as possible. Information about voting methods is set forth in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement. We continue to focus on saving costs and protecting the environment by using the Notice and Access method of delivery. Instead of receiving paper copies of our proxy materials in the mail, many shareholders will receive a Notice Regarding the Availability of Proxy Materials, which provides an Internet website address where shareholders can access electronic copies of the proxy materials and vote. This website also has instructions for voting by phone and for requesting paper copies of the proxy materials and proxy card.
On behalf of everyone at Welltower, I thank you for your ongoing interest and investment in Welltower Inc.
Sincerely,
Jeffrey H. Donahue
Chairman
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF WELLTOWER INC.:
The Annual Meeting of Shareholders of Welltower Inc. (the Annual Meeting) will be held on May 4, 2017 at 9:00 a.m. Eastern Time in the Bruce G. Thompson Auditorium at Welltowers corporate headquarters, 4500 Dorr Street, Toledo, Ohio 43615, for the purpose of considering and acting upon:
1. | The election of ten directors named in the Proxy Statement accompanying this notice to hold office until the next Annual Meeting of Shareholders and until their respective successors have been duly elected and qualified; |
2. | The ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for the fiscal year 2017; |
3. | The advisory vote to approve executive compensation; |
4. | The advisory vote on the frequency of advisory votes on executive compensation; and |
5. | The transaction of such other business as may properly come before the meeting or any adjournment thereof. |
The Board of Directors of Welltower Inc. unanimously recommends that you vote: (1) FOR each of the nominees for election to the Board (Proposal 1); (2) FOR the ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for the fiscal year 2017 (Proposal 2); (3) FOR the approval of executive compensation (Proposal 3); and (4) FOR the holding of advisory votes on executive compensation every year (Proposal 4). Shareholders of record at the close of business on March 7, 2017 will be entitled to notice of, and to vote at, the Annual Meeting or any adjournment thereof. Information relating to the matters to be considered and voted on at the Annual Meeting is set forth in the Proxy Statement accompanying this notice.
BY ORDER OF THE BOARD OF DIRECTORS
MATTHEW MCQUEEN Senior Vice President - General Counsel & Corporate Secretary
Toledo, Ohio March 20, 2017 |
Scan this QR code to view digital versions of the Companys Proxy Statement and 2016 Annual Report |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 4, 2017:
The Notice of Internet Availability of Proxy Materials, the Notice of Annual Meeting of Shareholders and Proxy Statement and the Annual Report are available on the Internet free of charge at www.welltower.com/proxy.
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Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 1 |
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General Information (continued)
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2 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
General Information (continued)
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Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 3 |
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Proposal 1Election of Directors
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The Companys By-Laws provide that the Board of Directors shall have nine members unless changed by the Board. The Nominating/Corporate Governance Committee of the Board of Directors annually considers the size, composition and needs of the Board and recommends nominees for directors to the Board for approval. In 2016, the Board increased the number of directors from nine to ten. There are ten Board nominees recommended for election at the Annual Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE FOLLOWING NOMINEES. The backgrounds, business experience and principal occupations of each nominee follow here. Each nominee receiving more votes for his or her election than votes against his or her election will be elected. If an incumbent director nominee receives a greater number of votes against his or her election than votes for such election, he or she is required to tender his or her resignation for consideration by the Nominating/Corporate Governance Committee in accordance with the Companys By-Laws.
4 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Proposal 1Election of Directors (continued)
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Directors to be Elected
THOMAS J. DEROSA
Age: 59 Director Since: 2004 |
Welltower Inc. Committees:
Executive |
Other Directorships:
Value Retail PLC Empire State Realty Trust, Inc. |
Education:
BS Economics and Finance, Georgetown University MBA Management, Columbia University |
Mr. DeRosa is Chief Executive Officer of the Company. Mr. DeRosa has served as Chief Executive Officer since April 2014. Mr. DeRosa is former Vice Chairman and Chief Financial Officer of The Rouse Company (real estate development and operations), a position he held from September 2002 until November 2004 when The Rouse Company merged with General Growth Properties, Inc. From 1992 to September 2002, Mr. DeRosa held various positions at Deutsche Bank (Deutsche Bank AG) and Alex. Brown & Sons, including Global Co-Head of the Health Care Investment Banking Group of Deutsche Bank and Managing Director in the Real Estate Investment Banking Group of Alex. Brown & Sons. Mr. DeRosa also serves as a director of Value Retail PLC (U.K.-based owner, operator and developer of luxury shopping villages in Europe) and Empire State Realty Trust, Inc. (owner, manager and operator of office and retail properties) and as a member of the board of advisors of Benchmark Senior Living (leading provider of senior living services in the Northeast). Mr. DeRosa served as a director of Dover Corporation (global provider of equipment, specialty systems and services for various industrial and commercial markets) until 2010, Georgetown University (where he also served on the Audit Committee) until 2014, and CBL & Associates Properties, Inc. (owner and developer of shopping centers) until 2015, and as a member of the Health Advisory Board of the Johns Hopkins Bloomberg School of Public Health until 2009. Mr. DeRosa has extensive knowledge of the real estate industry and capital markets from his experience as Vice Chairman and Chief Financial Officer of The Rouse Company and his leadership roles at Deutsche Bank and Alex. Brown & Sons. His day-to-day leadership of the Company as Chief Executive Officer provides him with intimate knowledge of the Companys business and operations.
JEFFREY H. DONAHUE
Age: 70 Director Since: 1997
Chairman; Independent Director |
Welltower Inc. Committees:
Executive (Chair) Nominating/Corporate Governance (Chair) |
Other Directorships:
National Development Company Xenia Hotels & Resorts, Inc. |
Education:
BA International Economics, Cornell University MBA Finance, Wharton School of the University of Pennsylvania |
Mr. Donahue is Chairman of the Company. Mr. Donahue has served as Chairman since April 2014. Mr. Donahue is former President and Chief Executive Officer of Enterprise Community Investment, Inc. (provider of affordable housing), a position he held from 2003 to 2009. Mr. Donahue was Executive Vice President and Chief Financial Officer of The Rouse Company (real estate development and operations) from 1998 to 2002. Mr. Donahue serves as a director of the National Development Company (commercial development and property company) and as Chairman of Xenia Hotels & Resorts, Inc. (public real estate investment trust). Mr. Donahue has also previously served on the boards of NewTower Trust Company (non-depository trust company specializing in real estate investment) until 2016, Bentall Kennedy (institutional real estate investment advisor) until 2015, four T. Rowe Price mutual funds and the T. Rowe Price Savings Bank, plus numerous charitable boards. Mr. Donahue has extensive knowledge of the real estate industry from his experience as President and Chief Executive Officer of Enterprise Community Investment, Inc. and Executive Vice President and Chief Financial Officer of The Rouse Company.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 5 |
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Proposal 1Election of Directors (continued)
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KENNETH J. BACON
Age: 62 Director Since: 2016
Independent Director |
Welltower Inc. Committees:
Compensation |
Other Directorships:
Comcast Corporation Ally Financial Inc. Forest City Realty Trust, Inc. |
Education:
BA Anthropology, Stanford University MSc International Relations, London School of Economics MBA Finance & Strategy, Harvard Business School |
Mr. Bacon is Co-founder and Managing Partner of RailField Realty Partners (financial advisory and asset management firm). Prior to forming RailField, Mr. Bacon spent 19 years at Fannie Mae, most recently as the Executive Vice President and Head of the Multifamily Business from July 2005 to March 2012. He has also served in senior positions at Morgan Stanley and the Resolution Trust Corporation. Mr. Bacon also serves as a director of Comcast Corporation (global media and technology company), Ally Financial Inc. (financial service company), and Forest City Realty Trust, Inc. (commercial and residential real estate company). Mr. Bacons extensive experience in the financial services industry, government affairs, the housing industry and real estate investment make him a valuable asset to the Board.
FRED S. KLIPSCH
Age: 75 Director Since: 2006
Independent Director |
Welltower Inc. Committees:
Audit Nominating/Corporate Governance |
Other Directorships:
Hoosiers for Quality Education The Friedman Foundation for Educational Choice Philanthropy Roundtable |
Education:
BS Industrial Education, Purdue University MBA Management, California State College Long Beach PhD Technology, Purdue University |
Mr. Klipsch is Founder and Chairman of Hoosiers for Quality Education (organization that seeks systemic education improvement and economic growth in Indiana), a position he has held since 2007. Mr. Klipsch also serves as a director of The Friedman Foundation for Educational Choice (non-profit organization that educates families on school choice) and the Philanthropy Roundtable (network of charitable donors). From 2011 to 2014, Mr. Klipsch was Chairman of Klipsch Group, Inc. (global speaker manufacturer) and from 1989 until 2011, he was Chairman, Chief Executive Officer and majority owner of Klipsch Group, Inc. From 1982 until 1989, Mr. Klipsch was Executive Vice President, Chief Operating Officer and Chief Development Officer of Forum Group Inc. (owner, operator and developer of hospitals, retirement centers and nursing homes). From 1989 until 1996, Mr. Klipsch was Chairman and majority owner of National Guest Homes (developer and operator of assisted living centers in the southern part of the United States). In addition, Mr. Klipsch was Chairman and majority owner of Hospital Affiliates Development Corporation (HADC) (medical properties development company) from 1989 until 2002, at which time it became part of Windrose Medical Properties Trust (self-administered and self-managed real estate investment trust focused on owning and developing acute care medical properties throughout the United States). Mr. Klipsch served as Chairman and Chief Executive Officer of Windrose Medical Properties Trust from its formation and initial public offering in 2002 until December 2006, when Windrose Medical Properties Trust merged with the Company. Mr. Klipsch served as Vice Chairman of the Company from December 2006 until May 2009. In addition to his significant global operational and leadership experiences with Klipsch Group, Inc., Mr. Klipsch has extensive knowledge of the hospital, medical office building, retirement center, assisted living and nursing home sectors from his ownership and operational experiences and leadership roles with the Forum Group Inc., National Guest Homes, HADC, Windrose Medical Properties Trust and the Company.
6 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Proposal 1Election of Directors (continued)
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GEOFFREY G. MEYERS
Age: 72 Director Since: 2014
Independent Director |
Welltower Inc. Committees:
Audit Nominating/Corporate Governance |
Other Directorships:
HCA PharMerica Trust Company of Toledo |
Education:
BA History & Comparative Literature, Northwestern University MBA Finance, The Ohio State University |
Mr. Meyers is the retired Chief Financial Officer, Executive Vice President and Treasurer of HCR ManorCare, Inc. (provider of short-term, post-acute services and long-term care), a position he held from 1991 to 2006. Prior to his work at HCR ManorCare, Inc., Mr. Meyers served as Chief Financial Officer of the Health Care Division of Owens-Illinois, Inc. (glass manufacturer and former holding company of HCR ManorCare, Inc.). Currently, Mr. Meyers serves as a director of HCA (hospital and freestanding surgery center operator in the United States and England) and is Chairman of its Audit Committee. He is also Chairman of PharMerica (institutional pharmacy primarily for long-term care and assisted living facilities) and a director of Trust Company of Toledo (NW Ohio trust bank). Mr. Meyers has extensive experience in the post-acute and acute-care industries, which provides valuable insight to the Company, and the knowledge he gained during his tenure as Chief Financial Officer of HCR ManorCare, Inc. expands the Boards expertise in the areas of risk management, reimbursement, strategic planning, development and acquisitions.
TIMOTHY J. NAUGHTON
Age: 55 Director Since: 2013
Independent Director |
Welltower Inc. Committees:
Compensation |
Other Directorships:
AvalonBay Communities, Inc. National Association of Real Estate Investment Trusts Park Hotels & Resorts Inc. |
Education:
BA Economics, University of Virginia MBA Harvard Business School |
Mr. Naughton is Chairman and Chief Executive Officer of AvalonBay Communities, Inc. (real estate investment trust focused on developing, redeveloping, acquiring and managing high-quality apartment communities). Mr. Naughton has served as a director of AvalonBay Communities, Inc. since 2005, as its Chairman since May 2013, as its Chief Executive Officer since January 2012, as its President since February 2005 and in a variety of other capacities with AvalonBay Communities, Inc. or its predecessors since 1989. Mr. Naughton serves as a director of Park Hotels & Resorts Inc. (lodging real estate company) and Chairman of the National Association of Real Estate Investment Trusts, and is a member of The Real Estate Roundtable, a member and past chairman of the Multifamily Council of the Urban Land Institute and a member of the Real Estate Forum. As the current Chief Executive Officer of a leading, publicly-traded real estate investment trust, Mr. Naughton brings strategic insight gleaned from being the leader of one of the most progressive, well-managed companies in a comparable industry. Mr. Naughton has 30 years of experience in the real estate investment trust and commercial real estate sectors.
SHARON M. OSTER
Age: 68 Director Since: 1994
Independent Director |
Welltower Inc. Committees:
Compensation (Chair) Executive Nominating/Corporate Governance |
Other Directorships:
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Education:
BA Economics, Hofstra University PhD Economics, Harvard University |
Ms. Oster is Frederic D. Wolfe Professor of Management and Entrepreneurship, Professor of Economics, at Yale University School of Management. From 2008 to 2011, she served as the Dean of the Yale University School of Management. Ms. Oster also served as a director of Bentall Kennedy (institutional real estate investment advisor) until 2015. Ms. Oster served as a director of The Aristotle Corporation (holding company for a manufacturer and distributor of educational, health and agricultural products) and Transpro, Inc. (designer and manufacturer of precision transportation products) until 2005. Ms. Osters expertise in competitive strategy, economic theory and management, and her leadership role at the Yale University School of Management and directorships with a variety of public companies give her a unique perspective.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 7 |
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Proposal 1Election of Directors (continued)
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JUDITH C. PELHAM
Age: 71 Director Since: 2012
Independent Director |
Welltower Inc. Committees:
Compensation Nominating/Corporate Governance |
Other Directorships:
Amgen Inc. |
Education:
BA Government, Smith College MPA Harvard University |
Ms. Pelham is the President Emeritus of Trinity Health (national health care system). From May 2000 to December 2004, Ms. Pelham served as the President and Chief Executive Officer of Trinity Health. Ms. Pelham served as the President and Chief Executive Officer of Mercy Health Services (health care system) from 1993 to 2000, the President and Chief Executive Officer of the Daughters of Charity Health Services, Austin, TX (network of hospitals, home care and ambulatory services) from 1982 to 1992, and the Assistant Vice President of Brigham and Womens Hospital from 1976 to 1980. Ms. Pelham also serves as a director of Amgen Inc. (biotechnology company). Ms. Pelham has extensive knowledge and leadership experience in the health care industry from her service as the President and Chief Executive Officer of Trinity Health, Mercy Health Services and the Daughters of Charity Health Services, Austin, TX.
SERGIO D. RIVERA
Age: 54 Director Since: 2014
Independent Director |
Welltower Inc. Committees:
Audit |
Other Directorships:
ILG, Inc. The Nature Conservancy Florida Chapter Trustee American Resort Development Association University of Central Florida Rosen College of Hospitality Management Advisory Board Florida International University Chaplin School of Hospitality & Tourism Management Deans Advisory Council |
Education:
BBA Finance, Florida International University MBA International Business, Florida International University |
Mr. Rivera is the Chief Executive Officer and President of the Vacation Ownership segment of ILG, Inc. (leading provider of professionally delivered vacation experiences in vacation ownership). Mr. Rivera is the former President of The Americas for Starwood Hotels & Resorts Worldwide, Inc. (hotel and leisure company), a position he held from 2012 to 2016, and Chief Executive Officer and President of Starwood Vacation Ownership, Inc., formerly a wholly owned subsidiary of Starwood Hotels & Resorts Worldwide, Inc., a position he held from 2007 to 2016. Mr. Rivera had served in a variety of capacities with Starwood Hotels & Resorts Worldwide, Inc. since 1998. Mr. Rivera serves as a director of ILG, Inc., a director and trustee of the American Resort Development Association and trustee of the Florida Chapter of The Nature Conservancy. Additionally, he serves as a member of the University of Central Florida Rosen College of Hospitality Management Advisory Board, the Florida International University Chaplin School of Hospitality & Tourism Management Deans Advisory Council, the Urban Land Institute and the CEO Roundtable of the U.S. Travel Association. Mr. Riveras extensive experience in real estate development and investment strategy, corporate finance and accounting, and operating matters relevant to management of complex global businesses with one of the leading hotel and leisure companies in the world provides valuable insight to the Board.
R. SCOTT TRUMBULL
Age: 68 Director Since: 1999
Independent Director |
Welltower Inc. Committees:
Audit (Chair) Executive |
Other Directorships:
Artisan Partners Funds, Inc. Schneider National, Inc. Columbus McKinnon Corporation ProMedica Trustee |
Education:
BA Economics, Denison University MBA General Management, Harvard Business School |
Mr. Trumbull is the retired Chairman of the Board of Franklin Electric Co., Inc. (manufacturer of water and fuel pumping systems), a position he held from 2003 to 2015. From 2003 to 2014, Mr. Trumbull was also Chief Executive Officer of Franklin Electric Co., Inc. From 2001 through 2002, Mr. Trumbull was Executive Vice President and Chief Financial Officer of Owens-Illinois, Inc. (manufacturer of glass containers). From 1993 to 2001, Mr. Trumbull served as Executive Vice President, International Operations & Corporate Development of Owens-Illinois, Inc. Mr. Trumbull also serves as a director of Schneider National, Inc. (privately-held leader in freight delivery and logistics), Artisan Partners Funds, Inc. (registered mutual fund) and Columbus McKinnon Corporation (designer, manufacturer and marketer of material handling systems and services) and is a member of the Board of Trustees of ProMedica (leading healthcare system with facilities located throughout Northwest Ohio and Southeast Michigan). Mr. Trumbulls leadership experience as Chairman and Chief Executive Officer of Franklin Electric Co., Inc. and in various capacities at Owens-Illinois, Inc. provides the Board with a global perspective.
8 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
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The table below summarizes the compensation paid in 2016 to the Companys non-employee directors.
2016 DIRECTOR COMPENSATION TABLE
Name | Fees Earned or Paid in Cash($) |
Stock Awards($)(5) |
Total($) | |||||||||
Kenneth J. Bacon | 70,856 | 115,546 | 186,402 | (6) | ||||||||
Jeffrey H. Donahue | 226,500 | (1) | 125,011 | 351,511 | ||||||||
Fred S. Klipsch | 85,250 | (2) | 125,011 | 210,261 | ||||||||
Geoffrey G. Meyers | 76,500 | 125,011 | 201,511 | |||||||||
Timothy J. Naughton | 80,000 | 125,011 | 205,011 | |||||||||
Sharon M. Oster | 108,500 | (3) | 125,011 | 233,511 | ||||||||
Judith C. Pelham | 79,500 | 125,011 | 204,011 | |||||||||
Sergio D. Rivera | 75,000 | 125,011 | 200,011 | |||||||||
R. Scott Trumbull | 109,500 | (4) | 125,011 | 234,511 |
(1) | Includes $125,000 additional fee for serving as Chairman of the Board of Directors, $15,000 additional fee for serving as Nominating/Corporate Governance Committee Chair and $7,500 additional fee for his services in 2016 in connection with strategic planning sessions of the Executive Committee. |
(2) | Includes $6,250 additional fee for special services provided to the Audit Committee during 2016. |
(3) | Includes $20,000 additional fee for serving as Compensation Committee Chair and $7,500 additional fee for her services in 2016 in connection with strategic planning sessions of the Executive Committee. |
(4) | Includes $25,000 additional fee for serving as Audit Committee Chair and $7,500 additional fee for his services in 2016 in connection with strategic planning sessions of the Executive Committee. |
(5) | Amounts set forth in this column represent the grant-date fair value calculated in accordance with FASB ASC Topic 718 for deferred stock units granted to the non-employee directors in 2016 and are based on the share price of $54.40 on February 12, 2016, the date of grant. As of December 31, 2016, (a) each non-employee director (other than Mr. Bacon, Mr. Meyers and Mr. Rivera) held an aggregate of 2,860 deferred stock units that have not yet been converted into shares of common stock, (b) Mr. Bacon held an aggregate of 2,124 deferred stock units that have not yet been converted into shares of common stock, (c) Mr. Meyers held an aggregate of 2,559 deferred stock units that have not yet been converted into shares of common stock, and (d) Mr. Rivera held an aggregate of 2,464 deferred stock units that have not yet been converted into shares of common stock. |
(6) | Mr. Bacon was appointed to the Board of Directors on January 29, 2016 and he received a pro rata portion of his compensation in 2016 based on the time he served as a director. |
The form and amount of non-employee director compensation is determined by the Board of Directors upon the recommendation of the Compensation Committee. Generally, the Boards policy is to pay its non-employee directors appropriate and competitive compensation so as to ensure the Companys ability to attract and retain highly-qualified directors in a manner consistent with recognized corporate governance best practices. Directors who are also employees do not receive additional compensation for their Board service. The Compensation Committee generally reviews non-employee director compensation on a bi-annual basis with its independent compensation consultant, which advises the Compensation Committee on the design and amount of compensation for non-employee directors.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 9 |
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Director Compensation (continued)
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The compensation program for non-employee directors for the 2016 calendar year consisted of:
Cash Compensation
| $75,000 annual cash fee |
| Additional Chairman of the Board fee of $125,000 per year |
| Additional Committee Chair fees of $25,000 per year for the Chair of the Audit Committee, $20,000 for the Chair of the Compensation Committee and $15,000 for the Chair of the Nominating/Corporate Governance Committee |
| If the Board of Directors holds more than four meetings in a year, each director will receive $1,500 for each meeting attended in excess of four meetings |
| If any of the Audit, Compensation, Executive or Nominating/Corporate Governance Committees holds more than four meetings in a year, each member will receive $1,000 for each meeting attended in excess of four meetings |
| Each non-employee member of the Executive Committee received $7,500 for his or her services in 2016 in connection with strategic planning sessions of the Executive Committee |
| Mr. Klipsch received $6,250 in 2016 as compensation for special services provided to the Audit Committee during 2016 |
Equity Compensation
In 2016, the non-employee directors each received grants of deferred stock units with a value of approximately $125,000 pursuant to the 2005 Long-Term Incentive Plan. The deferred stock units granted in 2016 will be converted into shares of common stock on the first anniversary of the date of grant. Recipients of the deferred stock units also are entitled to dividend equivalent rights.
Director Compensation Changes for 2017
The Compensation Committee has approved the following limited changes to the compensation of non-employee directors, which became effective January 1, 2017:
| The annual cash fee was increased from $75,000 to $85,000 |
| The grant of deferred stock units, pursuant to the 2016 Long-Term Incentive Plan, was increased in value from $125,000 to $140,000 |
In February 2013, the Compensation Committee revised the Companys minimum stock ownership policy to require each non-employee director, within five years of joining the Board or February 7, 2013, whichever is later, to own shares of common stock or deferred stock units with a fair market value of at least four times his or her annual cash fee. As of December 31, 2016, each of the non-employee directors was in compliance with these ownership requirements.
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Corporate Governance (continued)
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Corporate Governance (continued)
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Corporate Governance (continued)
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Corporate Governance (continued)
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Corporate Governance (continued)
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The following information is furnished as to the executive officers of the Company:
THOMAS J. DEROSA
Age: 59 |
Mr. DeRosa has served as Chief Executive Officer of the Company since April 2014. Mr. DeRosas biographical information is set forth under Directors to be Elected above. |
SCOTT A. ESTES
Age: 46 |
Mr. Estes has served as Executive Vice President - Chief Financial Officer of the Company since January 2009. Mr. Estes served as Senior Vice President and Chief Financial Officer of the Company from March 2006 to January 2009 and as Vice President of Finance of the Company from April 2003 to March 2006. From January 2000 to April 2003, Mr. Estes served as a Senior Equity Research Analyst and Vice President with Deutsche Bank Securities. |
MERCEDES T. KERR
Age: 48 |
Ms. Kerr has served as Executive Vice President - Business & Relationship Management of the Company since January 2017. Ms. Kerr served as Executive Vice President Business Development of the Company from July 2016 to January 2017, as Senior Vice President - Business Development of the Company from July 2015 to July 2016, as Senior Vice President - Marketing of the Company from September 2010 to July 2015 and as Vice President - Marketing of the Company from April 2008 to September 2010. Ms. Kerr served as a real estate consultant for Monument Realty Investors, Inc. from 2006 to 2008. Ms. Kerr served in various capacities with HCP, Inc. from 1997 to 2006, including as Vice President-Acquisitions and Dispositions. |
MATTHEW MCQUEEN
Age: 44 |
Mr. McQueen has served as Senior Vice President - General Counsel & Corporate Secretary of the Company since July 2016. Mr. McQueen served as Senior Vice President - Legal of the Company from March 2015 to July 2016. From 2007 to 2015, Mr. McQueen served as of counsel and a partner in the Corporate and Securities group at the law firm of Sidley Austin LLP. Mr. McQueen served as an associate and a partner at the law firm of Ball Eggleston PC from 2002 to 2007. |
SHANKH MITRA
Age: 36 |
Mr. Mitra has served as Senior Vice President - Finance & Investments of the Company since January 2016. From July 2013 to December 2015, Mr. Mitra served as Portfolio Manager, Real Estate Securities at Millennium Management. Mr. Mitra served as Senior Analyst at Citadel Investment Group from April 2012 to June 2013 and Fidelity Investments from June 2009 to March 2012. Mr. Mitra attended Columbia Business School from July 2007 to May 2009, where he received his MBA, and served as a manager at PricewaterhouseCoopers from June 2002 to July 2007. |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 17 |
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Security Ownership of Directors and Management and Certain Beneficial Owners |
The table below sets forth, as of March 7, 2017, unless otherwise specified, certain information with respect to the beneficial ownership of the Companys shares of common stock by each director of the Company, each Named Executive Officer, and the directors and executive officers of the Company as a group. Unless noted below, each person has sole voting and investment power regarding the Companys shares. Also, unless noted below, the beneficial ownership of each person represents less than 1% of the outstanding shares of common stock of the Company.
(1) | Mr. Bacon was appointed to the Board of Directors on January 29, 2016. |
(2) | Includes all restricted shares granted under the Companys Amended and Restated 2005 Long-Term Incentive Plan (2005 Long-Term Incentive Plan) and the Companys 2016 Long-Term Incentive Plan beneficially owned by such directors and Named Executive Officers and all directors and executive officers as a group as of March 7, 2017. |
(3) | Does not include 2,142 deferred stock units granted to each non-employee director in February 2017. These deferred stock units will be converted into shares of common stock on the next anniversary of the date of grant. |
(4) | On January 3, 2017, Mr. Brinkers position as the Executive Vice President - Chief Investment Officer of the Company was eliminated. Mr. Brinker is included in this table because he is a Named Executive Officer. Mr. Brinkers shares held of record are reported as of January 3, 2017, his last day as an employee of the Company. Mr. Brinker exercised all outstanding stock options on February 24, 2017. |
(5) | Does not include 5,206 restricted stock units granted to Mr. DeRosa pursuant to a performance-based restricted stock unit grant agreement. See the 2016 Nonqualified Deferred Compensation Table on page 54 for additional information regarding this award. These restricted stock units will vest on April 13, 2017. Settlement of these restricted stock units is automatically deferred under the terms of the grant agreement until the earliest of Mr. DeRosas separation from service (as defined under Section 409A of the Internal Revenue Code of 1986, as amended), his death or a change in control of the Company. |
(6) | On January 31, 2017, Mr. Miller retired as the Executive Vice President - Chief Operating Officer of the Company. Mr. Miller is included in this table because he is a Named Executive Officer. Mr. Millers shares held of record are reported as of January 31, 2017, his last day as an employee of the Company. Mr. Miller exercised all outstanding stock options on March 1, 2017. |
(7) | Ms. Osters total shares beneficially owned include 17,000 shares owned by her spouse. |
(8) | Mr. Trumbulls total shares beneficially owned include 23,362 shares held in trust for the benefit of his immediate family, as to which his spouse is the trustee. Mr. Trumbull disclaims beneficial ownership of these 23,362 shares. |
(9) | Total beneficial ownership represents 0.19% of the outstanding shares of common stock of the Company as of March 7, 2017. |
18 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Security Ownership of Directors and Management and Certain Beneficial Owners (continued) |
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Companys directors and executive officers, and persons who own beneficially more than 10% of the shares of common stock of the Company, to file reports of ownership and changes of ownership with the Securities and Exchange Commission and the New York Stock Exchange. Copies of all filed reports are required to be furnished to the Company pursuant to Section 16(a). Based solely on the reports received by the Company and on written representations from reporting persons, the Company believes that the directors and executive officers complied with all applicable filing requirements during the fiscal year ended December 31, 2016.
Based upon filings made with the Securities and Exchange Commission in January and February 2017 (with respect to holdings as of December 31, 2016), the only shareholders known to the Company to be the beneficial owners of more than 5% of the Companys common stock are as follows:
(1) | Includes 468,365 shares beneficially owned by Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., and 1,113,238 shares beneficially owned by Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc. In the aggregate, The Vanguard Group, Inc., Vanguard Fiduciary Trust Company and Vanguard Investments Australia, Ltd. have sole voting power over 1,029,441 shares, shared voting power over 458,662 shares, sole dispositive power over 49,900,708 shares and shared dispositive power over 1,020,527 shares. In addition, the number of shares reported as beneficially owned by The Vanguard Group, Inc. includes the 27,156,344 shares separately reported as beneficially owned by Vanguard Specialized Funds in its filing made with the Securities and Exchange Commission. Vanguard Specialized Funds has sole voting power over 27,156,344 shares. |
(2) | In the aggregate, BlackRock, Inc. and its affiliates have sole voting power over 33,878,646 shares and sole dispositive power over 37,655,712 shares. |
(3) | In the aggregate, State Street Corporation and its affiliates have shared voting power over 21,137,936 shares and shared dispositive power over 21,137,936 shares. |
(4) | The percentages set forth in the table reflect percentage ownership as of March 7, 2017. The actual filings of these beneficial owners provide percentage ownership as of December 31, 2016. |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 19 |
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Security Ownership of Directors and Management and Certain Beneficial Owners (continued) |
Certain Relationships and Related Transactions
Policies and Procedures for Review, Approval or Ratification of Related Party Transactions
20 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Proposal 2Ratification of the Appointment of the Independent Registered Public Accounting Firm |
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Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 21 |
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Proposal 2Ratification of the Appointment of the Independent Registered Public Accounting Firm (continued) |
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF ERNST & YOUNG LLP. The affirmative vote of a majority of the shares of voting securities present in person or by proxy at the Annual Meeting will be required for such ratification.
22 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Proposal 2Ratification of the Appointment of the Independent Registered Public Accounting Firm (continued) |
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Pre-Approval Policies and Procedures
Submitted by the Audit Committee
R. Scott Trumbull, Audit Committee Chair
Fred S. Klipsch, Audit Committee Member
Geoffrey G. Meyers, Audit Committee Member
Sergio D. Rivera, Audit Committee Member
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 23 |
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Proposal 3Advisory Vote to Approve Executive Compensation |
In accordance with the requirements of Section 14A of the Exchange Act, the Companys shareholders have the opportunity to vote to approve, on an advisory or non-binding basis, the compensation of the Named Executive Officers as disclosed in this Proxy Statement in accordance with the SECs compensation disclosure rules.
The Companys compensation programs, which are detailed in Executive CompensationCompensation Discussion and Analysis in this Proxy Statement, are designed to link pay to performance and to reward the Named Executive Officers for the achievement of short-term and long-term strategic and operational goals and increased shareholder returns. This compensation philosophy is central to the Companys ability to attract, retain and motivate individuals who can achieve superior financial results. This approach, which has been used consistently over the years, has resulted in the Companys ability to attract and retain the executive talent necessary to guide the Company. Please refer to Executive CompensationExecutive Summary in this Proxy Statement for an overview of the compensation of the Named Executive Officers and the Companys key financial and strategic achievements in 2016 that drove compensation decisions. We also encourage shareholders to read the Executive CompensationCompensation Discussion and Analysis in this Proxy Statement, which describes the details of the Companys compensation programs and the decisions made by the Compensation Committee in 2016.
Shareholders are being asked to vote on the following advisory resolution:
Resolved, that the compensation paid to the Companys Named Executive Officers as disclosed in this Proxy Statement in accordance with the SECs compensation disclosure rules, which disclosures include the disclosures under Executive CompensationCompensation Discussion and Analysis, the compensation tables and the narrative disclosures that accompany the compensation tables, is hereby approved.
This vote is not intended to address any specific item of compensation, but rather the overall compensation of the Named Executive Officers and the policies and practices described in this Proxy Statement. This vote is advisory and therefore not binding on the Company, the Board of Directors or the Compensation Committee. The Board and the Compensation Committee value the opinions of the Companys shareholders and to the extent there is any significant vote against the Named Executive Officers compensation as disclosed in this Proxy Statement, the Company will consider shareholders concerns, and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL, ON AN ADVISORY OR NON-BINDING BASIS, OF THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC. The affirmative vote of a majority of the shares of voting securities present in person or by proxy at the Annual Meeting will be required for advisory approval of this proposal.
24 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Proposal 4Advisory Vote on Frequency of Advisory Vote on Executive Compensation |
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Section 14A of the Exchange Act also enables the Companys shareholders to vote at least once every six years, on an advisory or non-binding basis, on how frequently they would like to cast an advisory vote on the compensation of the Named Executive Officers. By voting on this proposal, shareholders may indicate whether they would prefer an advisory vote on Named Executive Officer compensation once every one, two, or three years.
In 2011, the Companys shareholders voted in favor of holding advisory votes on executive compensation every year and the Board implemented this standard. The Board recommends that shareholders approve continuing to hold the advisory vote on executive compensation every year. The Board believes that conducting an advisory vote on executive compensation on an annual basis is appropriate for the Company and its shareholders at this time. This will allow the shareholders to provide timely, direct input on the Companys executive compensation philosophy, policies and practices as disclosed in the proxy statement each year. The Board will carefully consider the outcome of the vote when making future decisions regarding the frequency of advisory votes on executive compensation. However, because this vote is advisory and not binding, the Board may decide that it is in the best interests of the Company and its shareholders to hold an advisory vote more or less frequently than the alternative that has been selected by the shareholders.
Shareholders may cast their advisory vote to conduct advisory votes on executive compensation every 1 Year, 2 Years, 3 Years, or Abstain.
It is expected that the next vote on the frequency of holding advisory votes on executive compensation will occur at the 2023 annual meeting of shareholders.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE HOLDING OF ADVISORY VOTES ON THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS EVERY YEAR. The affirmative vote of a majority of the shares of voting securities present in person or by proxy at the Annual Meeting will be required for advisory approval of this proposal.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 25 |
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The Compensation Committee is responsible for the Companys executive compensation program and implementing its underlying philosophy and policies. An overview and analysis of the Companys executive compensation program, philosophy and policies is set forth below.
The Companys named executive officers for 2016 (the Named Executive Officers or NEOs) were:
Named Executive Officers | Title | |
Thomas J. DeRosa |
Chief Executive Officer | |
Scott A. Estes |
Executive Vice President - Chief Financial Officer | |
Mercedes T. Kerr |
Executive Vice President - Business & Relationship Management | |
Scott M. Brinker |
Former Executive Vice President - Chief Investment Officer (on January 3, 2017, Mr. Brinkers position as Executive Vice President - Chief Investment Officer of the Company was eliminated) | |
Jeffrey H. Miller |
Former Executive Vice President - Chief Operating Officer (on January 31, 2017, Mr. Miller retired as Executive Vice President - Chief Operating Officer of the Company) |
COMPENSATION PRINCIPLES
The Companys executive compensation program is designed to attract, motivate and retain top executive talent. Competing successfully in this dynamic sector requires highly skilled, knowledgeable individuals who are committed to delivering outstanding shareholder returns while effectively building relationships across the industry. The Compensation Committee continually reviews and refines the Companys compensation practices so that the compensation system is in line with the market, is responsive to concerns of shareholders, and takes into account best compensation practices. To that end, the Companys compensation program is based on three core principles:
| Align pay and performance, utilizing absolute and relative goals that measure performance both on an annual and multi-year basis. |
| Align management and shareholder interests, by establishing rigorous goals that balance and measure value creation over both the short and long term. |
| Pay the majority of compensation in the form of equity that vests over an extended number of years. |
COMPENSATION PLAN CHANGES
In response to evolving market best practices and shareholder input, the Compensation Committee continued to refine and enhance the compensation program in 2016. The revisions to the program were designed with the assistance of the Companys compensation advisor, FPL Associates (FPL), and in consultation with outside legal counsel (to assure that the Compensation Committee was receiving independent advice on legal aspects of the compensation program).
Based on strong shareholder support last year and with input from FPL, the management team, outside legal counsel, and shareholder groups, the Compensation Committee implemented the following limited modifications to the compensation program in 2016:
| Completed the implementation of an executive long-term incentive program that measures Company achievement over a forward-looking, multi-year performance period. |
| Replaced the net real estate investments component of the annual cash bonus program with a leverage metric (page 40). |
| Introduced a strategic plan metric for the 2016-2018 long-term incentive program that tracks private pay percentage. |
26 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive Compensation (continued)
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2016 PERFORMANCE
The Company had a strong year in 2016 that validated the strength of its platform. The Companys strategy is based on acquiring and developing a well-diversified, high quality portfolio located in strong high barrier to entry and growing markets operated or managed by best-in-class seniors housing and care organizations and health systems. The Company significantly improved its balance sheet, portfolio and risk profile through strategic acquisitions and dispositions during 2016.
The Compensation Committee evaluates all pre-established qualitative and quantitative metrics and factors in making its compensation decisions. Among the important metrics and factors the Compensation Committee considered were the management teams success in the following areas:
GROWTH
| Delivered strong annual earnings growth in 2016, including normalized funds from operations growth and normalized funds available for distribution growth. |
| Generated strong same-store net operating income growth across the portfolio in 2016. |
| Outpatient Medical portfolio generated solid NOI growth, supported by strong occupancy of 95% at year-end and a tenant retention rate of 87% for the year. |
PORTFOLIO AND BALANCE SHEET
| Completed $3.0 billion in pro rata gross new investments during the year, including $1.15 billion premier West Coast seniors housing portfolio (page 34). |
| Significantly improved the portfolio quality by disposing of nearly $2.8 billion of non-strategic assets (page 35). |
| Increased percentage of revenues generated by private pay sources by 400 basis points to 92.8% in 2016. |
| Improved key balance sheet metrics, including net debt to undepreciated book capitalization (37.4% at the end of 2016 as compared to 39.5% at the end of 2015) (page 35). |
CORPORATE
| Received corporate credit ratings upgrades from two rating agencies. |
| Paid a cash dividend of $3.44 per share in 2016, which represents an increase of 4% over dividends paid during 2015 (page 36). |
| Enhanced financial flexibility with expanded, extended and lower-priced $3.7 billion unsecured credit facility. |
SUSTAINABILITY
| Named to the Dow Jones North America Sustainability Index (DJSI). DJSI is considered among the most important global indicators of sustainability performance. |
| Designated as a Global Real Estate Sustainability Benchmark (GRESB) Green Star for sustainability performance for second consecutive year. |
| Received the NAREIT Leader in the Light (health care) award, which recognizes companies that have demonstrated superior and sustained sustainability practices. |
| Received recognition for 29 additional outpatient medical buildings for their sustainability leadership through the Green Arrow Building Certification (GABC) program. Since the start of the GABC program 69 outpatient medical buildings have received certification. |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 27 |
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Executive CompensationCD&A
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Compensation Discussion and Analysis
To assist shareholders in finding important information, this CD&A is organized as follows:
Section | Page | |||||||||
1. | COMPENSATION PHILOSOPHY AND OBJECTIVES | 28 | ||||||||
2. | POLICIES AND PROCEDURES | 29 | ||||||||
3. | ROLE OF THE COMPENSATION CONSULTANT | 30 | ||||||||
4. | INPUT OF EXECUTIVE OFFICERS ON COMPENSATION | 30 | ||||||||
5. | SHAREHOLDER OUTREACH INITIATIVES | 30 | ||||||||
6. | IMPROVEMENTS TO EXECUTIVE COMPENSATION PROGRAM STRUCTURE | 31 | ||||||||
7. | COMPENSATION PEER GROUP | 33 | ||||||||
8. | 2016 COMPANY PERFORMANCE | 34 | ||||||||
9. | CEO PAY OVERVIEW | 37 | ||||||||
10. | COMPENSATION ELEMENTS AND RESULTS | 38 |
1. | COMPENSATION PHILOSOPHY AND OBJECTIVES |
The philosophy underlying the Companys executive compensation program is to provide competitive pay for achieving rigorous performance goals. The objective is to attract and retain the caliber of executive officers and other key employees necessary for the Company to deliver sustained high performance to shareholders. The short-term and long-term metrics built into the compensation program are specifically designed to align management and shareholder interests directly. Outlined below are the principles underlying the Companys executive compensation program.
| Strongly align pay and performance, utilizing absolute and relative goals across annual and multi-year performance periods |
¡ | Payouts vary based upon the degree to which performance measures are achieved. |
¡ | Multiple performance measures are used to ensure a focus on overall Company performance. |
¡ | Variable reward payouts are designed to provide competitive compensation for achieving expected performance, and enhanced compensation for performance that exceeds expectations. |
| Attract and retain top management talent |
¡ | The executive compensation program is structured to attract and retain individuals with the skills necessary to effectively manage a complex, growing international business. |
¡ | The Compensation Committee regularly benchmarks its executive compensation program to compensate executives to approximate the median level for target performance, with above median payouts for superior performance. |
¡ | Individual performance is a key element in the annual cash bonus program, which is designed to motivate executives to perform at the highest levels. |
| Link compensation realized to the achievement of the Companys short and long-term financial and strategic goals |
¡ | A majority of each Named Executive Officers total direct compensation opportunity is in the form of annual and long-term incentive compensation. |
¡ | Performance measures are selected based on careful assessment of measures that will encourage profitable growth and increase shareholder value. |
¡ | Actual compensation may be above or below the targeted level, depending on achievement relative to pre-established performance goals that reflect the Companys short and long-term business plans. |
| Align management and shareholder interests by engaging in long-term shareholder value creation |
¡ | Long-term incentive awards are granted in the form of equity awards that vest based on performance and continued employment over multiple years, which aligns managements interests with those of the Companys shareholders. |
¡ | The current incentive programs include an annual cash bonus component and a three-year forward-looking component emphasizing both short and long-term shareholder value creation. |
¡ | Stock ownership guidelines require that Board members and executives maintain significant levels of stock ownership, further emphasizing the focus on long-term shareholder return and alignment with shareholder interests. |
28 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
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2. | POLICIES AND PROCEDURES |
The Compensation Committee is responsible for determining the nature and amount of compensation for the Companys Chief Executive Officer and for reviewing and approving the compensation for the other four executive officers listed on page 17. The Committee consists of four non-employee directors. Ms. Oster is the Chair of the Compensation Committee and Mr. Bacon, Mr. Naughton and Ms. Pelham are Compensation Committee members.
The Companys compensation policies and programs are designed to implement the philosophy described above. The Company has implemented a number of measures in an effort to drive performance and align the interests of the Companys executives with shareholders.
What the Company Does | What the Company Doesnt Do | |||||
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Pays for performance. A significant portion of executive pay is not guaranteed, but rather is at-risk and tied to key financial and value-creation metrics that are disclosed to the shareholders. All of the incentive compensation (both cash and equity) is subject to the achievement of various performance objectives. |
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Guarantee salary increases, bonuses or equity grants. The Company does not guarantee annual salary increases or bonuses to anyone. It currently has no guaranteed commitments to grant any equity-based awards. Finally, the entire long-term program is predicated on the achievement of performance metrics. This ensures that the Company is able to base all compensation awards on measurable performance factors and business results.
Provide excise tax gross-up payments. The Company will not enter into any new agreements that include excise tax gross-up payments.
Reprice options. Since its initial public offering in 1978, the Company has not repriced or otherwise reduced the per-share exercise price of any outstanding stock options. Repricing of stock options is not permitted under the 2005 Long-Term Incentive Plan or the 2016 Long-Term Incentive Plan.
Pledging or hedging. The Companys insider trading policy prohibits the Companys directors and executive officers from entering into hedging or monetization transactions with respect to the Companys securities and from holding the Companys securities in margin accounts or otherwise pledging such securities as collateral for loans.
Dividends or dividend equivalents on unearned performance shares. Performance share award agreements do not provide for the payment of dividends until the shares are earned. | |||
Balances short-term and long-term incentives. The incentive programs provide an appropriate balance of annual and longer-term incentives. | ||||||
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Caps award payouts. Amounts or shares that can be earned under the annual incentive program and long-term incentive program are capped. No guaranteed minimum amounts or awards are provided. |
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Maintains share ownership guidelines. The Company has established the following minimum share ownership requirements: CEO five times base salary; executive officers three times base salary; and outside directors four times the annual cash fee. |
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Provides enhanced change in control protections only after double-trigger. The CEOs employment agreement includes double trigger severance provisions requiring both a change in control and a subsequent qualifying termination of employment. |
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Utilizes an independent compensation consulting firm. The Compensation Committee has engaged an independent compensation consulting firm that specializes in the REIT industry. |
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Maintains a clawback policy. The Compensation Committee adopted a clawback policy that, in the event of a financial restatement, allows the Company to recoup incentive compensation (including stock options, restricted stock and restricted stock units) paid to executive officers based on the misstated financial information. | |||||
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Conducts a risk assessment. The Compensation Committee annually conducts a compensation risk assessment to determine whether the compensation policies and practices, or components thereof, create risks that are reasonably likely to have a material adverse effect on the Company. |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 29 |
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Executive CompensationCD&A (continued)
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3. | ROLE OF THE COMPENSATION CONSULTANT |
The Compensation Committee has engaged FPL as its independent compensation consultant to advise the Committee on compensation program design, the components of the Companys executive compensation programs and the amounts the Company should pay its executive officers.
FPL performs no services for management unless requested by and on behalf of the Chair of the Compensation Committee. The consultant generally attends meetings of the Compensation Committee, and the Chair of the Compensation Committee frequently interacts with the consultant between meetings to define the nature of work to be conducted, review materials to be presented at meetings and obtain the consultants opinion and perspective on proposals prepared by management.
During 2016, FPL performed the following specific services:
| Re-evaluated the peer group |
| Conducted a comprehensive review of executive and board compensation |
| Developed a new long-term incentive program design |
As part of the process of assessing the effectiveness of the Companys compensation programs and assisting with implementation, the consultant also interacts with members of management. The consultants primary contacts with management are the Executive Vice President - Chief Financial Officer and the Senior Vice President - Human Capital. The independence of FPL was assessed by the Compensation Committee and no conflicts of interest were found.
4. | INPUT OF EXECUTIVE OFFICERS ON COMPENSATION |
The Compensation Committee receives input from certain executive officers on a variety of issues related to compensation.
| The Chief Executive Officer considers the performance of each other NEO and makes recommendations to the Compensation Committee regarding each other NEOs individual performance score associated with the annual cash bonus program, and future increases to base salary and incentive compensation opportunities. The Compensation Committee takes these recommendations into consideration when determining earned incentive compensation and when setting compensation opportunities for the coming year. |
| Each year, management establishes an annual plan for the Boards review, which includes financial budgets and key strategic objectives for the Company. The Compensation Committee has designed the compensation programs to encompass key financial and strategic objectives included in the annual plan. |
| The Companys Executive Vice President - Chief Financial Officer assists the Compensation Committee in assessing the financial and legal impact of compensation decisions. |
| The Companys Senior Vice President - General Counsel & Corporate Secretary along with the Senior Vice President - Human Capital assist the Compensation Committee in administering the compensation programs, including the Companys 2005 and 2016 Long-Term Incentive Plans as well as the three-year rolling executive Long-Term Incentive Programs, and ensuring that all relevant documentation and disclosures are completed (e.g., filings with the Securities and Exchange Commission and legal documents). |
5. | SHAREHOLDER OUTREACH INITIATIVES |
At the 2016 Annual Meeting, approximately 94% of shareholder votes were cast in favor of the compensation of the NEOs (also commonly referred to as Say-on-Pay). This represents a similar voting result for the 2015 Say-on-Pay proposal (97% in favor). The Compensation Committee and management were pleased with these results, but continue to engage with shareholders as part of their continuing efforts to refine and enhance the executive compensation program.
The Compensation Committee, with assistance from FPL, considered the opinions provided during shareholder and investor meetings during the past few years in the development of the 2017 compensation program. Investors have been pleased with the Companys continuing efforts to enhance the connection between pay and performance. The Companys efforts include the implementation of a three-year forward-looking long-term incentive program that features consecutive, rolling three-year tranches.
In 2016, members of senior management conducted over 300 meetings with investors and analysts to discuss a number of topics, including, but not limited to, financial results, Company strategy, objectives and performance, compensation metrics, corporate governance initiatives and industry trends.
30 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
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6. | IMPROVEMENTS TO EXECUTIVE COMPENSATION PROGRAM STRUCTURE |
The Compensation Committee continues to work with FPL, considers feedback from proxy advisory firms, and engages shareholders to ensure all potential compensation concerns are evaluated and its pay for performance practices are supported.
Changes to the Annual Cash Bonus Program
The Compensation Committee removed the net real estate investments component of the annual cash bonus program and replaced it with a leverage metric in order to emphasize the health of the balance sheet. The Compensation Committee also modified the weightings for Mr. Brinker for the cash NOI versus underwritten projections metric. The weightings for the measures vary among the NEOs based on their operational responsibility and sphere of influence. For example, Mr. Brinker has a more direct impact on cash NOI versus underwritten projections than other NEOs, so his weighting for that metric is greater than the other NEOs. All NEOs have at least a 5% weighting for each measure.
2016 Annual Incentive Cash Bonus Measures
Metric | DeRosa | Estes | Kerr | Brinker | Miller | |||||
Normalized FFO per share | 30% | 25% | 25% | 25% | 25% | |||||
Same store NOI growth | 25% | 25% | 25% | 25% | 25% | |||||
Leverage | 15% | 15% | 15% | 10% | 15% | |||||
Cash NOI vs. underwritten projections on 2015 operating acquisitions | 5% | 5% | 5% | 10% | 5% | |||||
Individual Goals | 25% | 30% | 30% | 30% | 30% |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 31 |
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Executive CompensationCD&A (continued)
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Changes to the Long-Term Incentive Plan
In response to investor feedback and in consultation with FPL, the Compensation Committee has transitioned to a long-term incentive program based entirely on forward-looking performance. The program features consecutive, rolling three-year tranches and includes the following metrics:
2015 2017 3-Year
Long-Term Incentive Program
Metric | Weighting | |
Total Shareholder Return v. NAREIT Health Care Index | 35% | |
Total Shareholder Return v. Morgan Stanley (MSCI) US REIT Index | 15% | |
Absolute Total Shareholder Return | 15% | |
Adjusted Fixed Charge Coverage | 20% | |
Relative Same Store NOI Growth | 15% |
2016 2018 3-Year
Long-Term Incentive Program
Metric | Weighting | |
Total Shareholder Return v. NAREIT Health Care Index | 35% | |
Total Shareholder Return v. Morgan Stanley (MSCI) US REIT Index | 15% | |
Absolute Total Shareholder Return | 15% | |
Adjusted Fixed Charge Coverage | 20% | |
Private Pay | 15% |
The transition from the prior split program, which featured awards made after the completion of the performance period (i.e. backward-looking), to the three-year forward-looking program, which features the upfront grant of performance shares, is now complete. The NEOs received grants under the prior program (reflecting previous achievement of performance goals) for the final time in February 2016. In accordance with SEC rules, the February 2016 grants are included in the Summary Compensation Table on pages 48-49 (even though they relate to performance in 2015).
For 2016, 84% of the CEOs 2016 total target compensation was performance-based and not guaranteed and 54% was in the form of long-term equity compensation (see page 38). Likewise, an average of 78% of the other NEOs 2016 total target compensation was performance-based and not guaranteed, and an average of 39% was in the form of long-term equity compensation.
32 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
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7. | COMPENSATION PEER GROUP |
As part of its annual compensation review, the Compensation Committee conducts a comprehensive review of the executive compensation programs relative to a relevant peer group of comparable REITs. The competitive review is one of the compensation elements the Compensation Committee takes into account in making compensation decisions. Along with Company performance, the Compensation Committee also considers the experience, tenure and past performance of each of the executive officers.
Across the public REIT Industry, the Company is now the 7th largest measured by enterprise value and the 9th largest measured by market capitalization, and the Company is included in the S&P 500 Index. As illustrated below, the peer group was selected because its members are similar in size to the Company, share a similar business model, geographic footprint, regulatory environment and/or competitive dynamics. The peer group represents the industries with which it currently competes for executive talent, and also includes the Companys principal business competitors. The peer group has evolved over time as the Company has grown, but it did not change in 2016.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 33 |
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Executive CompensationCD&A (continued)
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8. | 2016 COMPANY PERFORMANCE |
The primary goal of the Compensation Committee is to link relative pay to relative, and in some instances absolute, performance. 2016 was another strong year for the Company. Throughout the year, as a result of experienced and steady leadership, the Company continued to seize opportunities and further differentiate itself from the competition. Some of the accomplishments that the Compensation Committee considered in determining compensation levels included:
PRO RATA GROSS INVESTMENTS
34 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
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PRO RATA DISPOSITION PROCEEDS
NET DEBT TO UNDEPRECIATED BOOK CAPITAL
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 35 |
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Executive CompensationCD&A (continued)
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PRIVATE PAY
183 CONSECUTIVE DIVIDENDS
36 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
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9. | CEO PAY OVERVIEW |
This section highlights the terms of Mr. DeRosas amended and restated employment agreement, which was entered into on January 3, 2017 and will become effective on April 13, 2017, and outlines the compensation paid to him in 2016 in light of the Companys performance.
Mr. DeRosas Amended and Restated Employment Agreement
In 2016, the Company had an employment agreement with Thomas J. DeRosa, Chief Executive Officer of the Company, which expires on April 13, 2017. Under that original employment agreement, Mr. DeRosa receives a base salary that is reviewed and adjusted each year by the Compensation Committee and he is eligible to receive discretionary annual bonuses and equity awards under the Companys long-term incentive plans. The Company also provides Mr. DeRosa with an automobile allowance to cover the cost of leasing a vehicle during the term of his employment agreement. Mr. DeRosa received a one-time grant of $1,000,000 of performance-based restricted stock units (15,618 units) on July 30, 2014 in connection with the commencement of his employment as CEO. See the 2016 Nonqualified Deferred Compensation Table on page 54 for additional information regarding these performance-based restricted stock units. In addition, to the extent the Company no longer maintains the health plan in which Mr. DeRosa is participating as of May 1, 2014 and, if he elects to not participate in any other group health plan sponsored or maintained by the Company, he may receive a cash payment in lieu of such benefits up to $2,000 per month. Mr. DeRosa is entitled to severance protections and benefits in connection with certain qualifying termination events, some of which are enhanced following a change in corporate control of the Company. For a description of the provisions of the agreement regarding compensation and benefits payable upon termination or a change in corporate control, see Potential Payments Upon Termination or Change in Corporate Control on pages 55-56.
In anticipation of the expiration of his original employment agreement and in recognition of his exemplary performance, on January 3, 2017, the Company entered into a new employment agreement with Mr. DeRosa, which will become effective on April 13, 2017, after the expiration of his current employment agreement. As was the case under Mr. DeRosas original employment agreement that was in effect during 2016, his amended and restated employment agreement includes the provisions listed below, which the Company considers best practices.
BEST PRACTICES CEO EMPLOYMENT AGREEMENT | ||
| No evergreenterm is defined and there is no automatic renewal feature | |
| No severance payable upon expiration of the term | |
| No automatic compensation increases | |
| No guaranteed bonus payments | |
| Any severance payments are conditioned upon a general release and continued compliance with non-competition, nonsolicitation and confidentiality requirements | |
| Double-trigger required for both severance and acceleration of equity awards following a change in corporate control | |
| No excise tax gross-ups | |
| Limited perquisites and no perquisites upon retirement
|
Pursuant to his amended and restated employment agreement, Mr. DeRosa will continue to serve as the Chief Executive Officer of the Company until April 13, 2020. He will receive an annual base salary of $1,000,000, together with a target bonus opportunity under the Companys annual cash bonus program equal to 175% of his annual base salary and long-term stock awards under terms and conditions determined by the Compensation Committee. The Company will also reimburse Mr. DeRosa for reasonable costs of an annual medical exam and continue to provide an automobile allowance during the term of his employment agreement. His severance protections under his new employment agreement essentially remain the same as the severance protections afforded by his original employment agreement that was in effect in 2016.
In negotiating the terms of Mr. DeRosas new employment agreement, the Compensation Committee took into account Mr. DeRosas exemplary performance over the course of the first three years of his tenure as Chief Executive Officer, which included his successful vision, leadership, interaction with the investment community and strong track record of financial performance (including strong normalized funds from operations growth, same-store net operating income growth and improvements to key balance sheet metrics), combined with the Compensation Committees desire to adjust his pay from ranking as the lowest of the peer group to a total opportunity that approximates the market median (which is consistent with market best practices).
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 37 |
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Executive CompensationCD&A (continued)
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The compensation program balances a variety of key performance metrics, measures performance on both an absolute and relative basis to protect against rising/falling markets, evaluates performance over both short and long-term performance periods, and is rigorous and heavily weighted toward incentive pay and equity in particular.
2016 Compensation Components
The Compensation Committee established the following key components of Mr. DeRosas 2016 compensation:
| Base Salary: Mr. DeRosas 2016 base salary was set at $950,000. |
| Annual Cash Incentive: The target opportunity percentage for Mr. DeRosa in 2016 was set at 150% of base compensation and the maximum opportunity percentage was set at 300%. |
| 2015-2017 Long-Term Incentive Program: Any award earned will be based on Company performance during the three-year period ending December 31, 2017 against the five metrics listed on pages 32 and 44. The target opportunity was set at $4.0 million. |
| 2016-2018 Long-Term Incentive Program: Any award earned will be based on Company performance during the three-year period ending December 31, 2018 against the five metrics listed on pages 32 and 45. The target opportunity was set at $5.7 million. |
10. | COMPENSATION ELEMENTS AND RESULTS |
This section describes how the Compensation Committee applied the compensation program and the Companys performance in determining the compensation of all NEOs.
The elements used to achieve the compensation objectives, and which enable the Company to retain, motivate, engage, and reward the NEOs and other executives, include base salary, annual cash incentives, long-term incentives, and other perquisites and benefits, and are described in more detail below. In allocating compensation among these components, the Company seeks to provide reasonable and competitive levels of fixed compensation (base salary), while emphasizing performance-based compensation that varies based on Company and individual performance.
The following charts illustrate each NEOs base salary, target annual cash incentive compensation and target three-year long-term incentive compensation as a percent of total target compensation for 2016. On average, 79% of total target compensation is based on Company performance.
Base Salary
Base salaries are established at levels that will attract and retain talented executives. To that end, base salaries are generally targeted to approximate the market median, but may deviate from this competitive position based on the scope of the individuals role in the organization, the individuals experience in the current position, and individual performance. Base salaries are reviewed annually and may be adjusted to better match market competitive levels and/or to recognize an individuals growth and development. Base salaries for the NEOs were as follows:
Executive | 2015 Salary |
2016 Salary |
% Increase | |||||||||||
Thomas J. DeRosa | $ | 950,000 | $ | 950,000 | 0% | |||||||||
Scott A. Estes | 510,000 | 510,000 | 0% | |||||||||||
Mercedes T. Kerr | 324,612 | 484,500 | (1) | 49% | ||||||||||
Scott M. Brinker | 484,500 | 484,500 | 0% | |||||||||||
Jeffrey H. Miller | 510,000 | 510,000 | 0% |
(1) | On July 29, 2016, Ms. Kerr was appointed to serve as Executive Vice President - Business Development of the Company. In connection with this promotion, Ms. Kerrs salary was increased from $324,612 to $484,500. Ms. Kerr received a blended base salary in the amount of $391,232 in 2016. |
38 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
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|
Mr. DeRosa, Mr. Estes, Mr. Brinker and Mr. Miller did not receive base salary increases in February of 2016. Ms. Kerr received a base salary increase in connection with her promotion to Executive Vice President - Business Development of the Company.
For 2017, the Compensation Committee did not increase the base salaries for Mr. Estes or Ms. Kerr.
Annual Incentives
Annual incentives reward the executives for the achievement of certain performance objectives tied to the Companys annual business plan, as well as achievement of individual performance objectives. Under this program, a range of earnings opportunities is established for each executive at the beginning of the performance period, expressed as percentages of base salary and corresponding to three levels of performance (threshold, target and high).
The rigorous corporate performance measures and weightings set by the Compensation Committee for 2016 under the annual incentive program were as follows:
Normalized Funds from Operations (FFO) per share.
|
Weighting
| |||
2016 Goal: |
Threshold: $4.45, +1.6% growth
Target: $4.55, +3.9% growth
High: $4.65, +6.2% growth
|
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Why the Company chose this measure: FFO is a common non-GAAP measure of earnings performance for REITs because it provides insight into the earnings generated from the real estate platform. FFO means net income attributable to common stockholders, computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate and impairments of depreciable assets, plus real estate depreciation and amortization, and after adjustments for unconsolidated entities and noncontrolling interests. Normalized FFO for 2016 represents FFO adjusted for transaction costs, provision for loan losses, net gains (or losses) on derivatives and extinguishments of debt, nonrecurring income tax benefits, certain other expenses or income and normalizing items relating to unconsolidated/noncontrolling interests. This measure is included in the compensation program because it is the measure most commonly used by analysts to assess the performance of REITs. If the Company achieves a level of normalized FFO per share as a result of inappropriate amounts of leverage, the Compensation Committee may determine that bonuses should not be paid for this goal.
How the Compensation Committee set the 2016 goal: In its 2016 initial public guidance, the Company projected normalized FFO in a range of $4.50 to $4.60 per diluted share. Target performance was set at $4.55 or the midpoint of the initial guidance range. The range of $0.10 around target results in a threshold of $4.45 and a high of $4.65. The high score was set at $0.05 above the high end of initial public guidance. High performance would only be achieved if the Company significantly exceeded the high end of such guidance.
Same Store NOI Growth.
|
Weighting
| |||
2016 Goal: |
Threshold: +2.0%
Target: +3.0%
High: +4.0%
|
|||
Why the Company chose this measure: Net operating income (NOI) is used to evaluate the operating performance of the Companys properties. NOI means total revenues, including tenant reimbursements, less property operating expenses, which represent costs associated with managing, maintaining and servicing tenants for the Companys seniors housing operating and outpatient medical properties. Same store NOI (SSNOI) is used to evaluate the operating performance of the Companys properties under a consistent population which eliminates changes in the composition of the portfolio. For purposes of SSNOI, same store is generally defined as those revenue-generating properties in the portfolio for the relevant year-over-year reporting periods. Land parcels, loans, sub-leases and any properties acquired, developed/redeveloped, transitioned, sold or classified as held for sale during those periods are excluded from the same store amounts. SSNOI
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 39 |
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Executive CompensationCD&A (continued)
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represents NOI for same store properties adjusted for elimination of non-cash NOI, adjustments to translate Canadian
properties at a USD/CAD rate of 1.3495 and UK properties at a GBP/USD rate of 1.4950, adjustments to reflect consistent ownership percentages, and other adjustments as disclosed in the Companys quarterly financial supplements.
How the Compensation Committee set the 2016 goal: In its 2016 initial public guidance, the Company projected blended SSNOI growth in a range of 2.5%-3.0%. The Compensation Committee set target performance at 3.0% or the high end of the initial guidance. The range of 1.0% around target results in a threshold of 2.0% and a high of 4.0%. The high score is a full 1.0% greater than the initial public guidance.
Leverage.
|
Weighting
| |||
2016 Goal: |
Threshold: 42.0%
Target: 39.5%
High: 37.0% |
|||
Why the Company chose this measure: For 2016, the Company has included a leverage measure (net debt to undepreciated book capitalization) to emphasize balance sheet strength, which has been a hallmark of the Company. The Compensation Committee believes it is important that the Company does not sacrifice its balance sheet to grow in other areas of the business. Net debt to undepreciated book capitalization is a ratio (expressed as a percentage) of net debt to undepreciated book capitalization. Net debt represents total debt less cash and cash equivalents. Undepreciated book capitalization represents net debt plus total equity (including noncontrolling interests), after adding back accumulated depreciation and amortization.
How the Compensation Committee set the 2016 goal: The Compensation Committee set target performance for leverage at 39.5%, which is consistent with leverage at the end of 2015. The range of 2.5% around target results in a threshold of 42.0% and a high score of 37.0%.
Cash NOI of 2015 Operating Acquisitions vs. Underwritten Projections.
|
Weighting
| |||
2016 Goal: |
Threshold: >90% of underwritten projections
Target: >100% of underwritten projections
High: >110% of underwritten projections |
|||
Why the Company chose this measure: This measure compares the cash NOI of the Companys 2015 operating acquisitions against underwritten expectations. Cash NOI represents NOI (as defined on page 39) as adjusted for the elimination of certain non-cash items. Operating acquisitions is a term used to encompass RIDEA investments and outpatient medical investments. The Company chose to limit the metric to operating acquisitions because they are the only investments over which it has influence on operating budgets. The Company believes it is appropriate to align the integration and success of recent investments with managements annual incentive measures. This measure also serves to help bridge part of the gap left by the SSNOI measure, which only includes investments that have been in the portfolio for certain year-over-year reporting periods as discussed on page 39.
How the Compensation Committee set the 2016 goal: The Compensation Committee believes the Company should reach or exceed 100% of its expected underwritten Cash NOI projections for the 2015 operating acquisitions in order to achieve target performance. Threshold performance (greater than 90% of expected Cash NOI) represents solid performance for these investments (in light of the Companys high expectations) and high performance (greater than 110% of expected Cash NOI) represents excellent performance.
40 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
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|
Individual Performance.
|
Weighting
| |||
2016 Goal: |
Each of the NEOs is evaluated against a set of individual strategic goals. |
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Why the Company chose this measure: The Company tailors individual goals to the roles and responsibilities of each NEO, including, among other things, the implementation and execution of targeted investment strategies, communication with investors, effective capital raising and promotion in the capital markets and participation in succession planning for management. Individual goals allow the Compensation Committee to evaluate the performance of each executive and the business segments or functions that an executive leads. An important component of this metric is whether the executive achieves business results in a manner that is consistent with corporate strategic plans and objectives.
How the Compensation Committee set the 2016 goals: The Compensation Committee established individual goals based on the Companys key strategic objectives for 2016 (and, as applicable, objectives for business segments or functions for which the executive is primarily responsible), as well as personal initiatives for 2016 for each executive that the Compensation Committee deemed were important.
Annual Incentive Results
2016 Individual Performance
For Mr. DeRosa, 75% of the annual cash bonus was determined by corporate performance and 25% by individual performance. The corporate component was set at 75% because the Compensation Committee believes that the vast majority of the Chief Executive Officers annual cash bonus should be based on overall corporate performance given his ultimate accountability for the Companys performance.
For Mr. Estes, Ms. Kerr, Mr. Brinker and Mr. Miller, 70% of the annual cash bonus was determined by corporate performance and 30% by individual performance. The Compensation Committee believes that overall corporate performance should be the primary basis for determining annual cash incentives for all of its executives.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 41 |
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Executive CompensationCD&A (continued)
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Mr. DeRosa
| Actively championed and positioned the Companys strategic plan and value proposition in the market with investors, health care leaders, clients and prospective clients delivering strong normalized FFO and FAD per share increases versus 2015. |
| Positioned the Company as a thought leader in the health care sector and elevated the Company profile by serving as a Governor of the World Economic Forum and speaking at high visibility events including The Aspen Ideas Festival: Spotlight Health and the EY Strategic Growth Forum. Served on the Board of Argentum, the largest senior living association in the U.S. |
| Developed new strategic relationships and elevated existing relationships, including new sources of capital such as sovereign funds and international investors, including a joint venture with Cindat Capital Management Limited (Cindat) and Union Life Insurance Co. Ltd. This U.S. $930 million transaction represents Cindats first U.S. health care real estate investment. |
| Directed the repositioning of the Companys portfolio including the generation of approximately $1.6 billion of proceeds from the sale of Genesis Healthcare, Inc. post-acute care properties. The Companys disposition activities drove several strategic benefits including significantly increasing private pay revenue mix across the portfolio, reducing the long-term/post-acute care concentration of the portfolio and improving long-term/post-acute care payment coverage. |
| Oversaw $3.0 billion of gross investments, including $1.15 billion premier west coast seniors housing portfolio. |
| Elevated the Companys profile and vision in support of advancing the quality of care and life for the aging population and was recognized as the Alzheimers Association National Brain Ball Honoree, an event that elevates the profile of Alzheimers disease and its impact on families and raises funds for research and critical support services for individuals, families and caregivers facing the daily challenges of the disease. |
| Improved strength of the Companys balance sheet, including ratings upgrades from two rating agencies, creating additional value for shareholders and reducing the cost of capital. |
Mr. Estes
| Drove strong financial and cash flow management generating year over year increases in FFO and FAD. |
| Led the Companys Capital Markets and Finance teams responsible for making significant enhancements to the Companys balance sheet in 2016: |
¡ | 37.4% net debt/undepreciated book cap (improvement of 210 basis points as compared to 2015) |
¡ | Improved net debt to adjusted EBITDA ratio from year-end 2015 |
| Created additional shareholder value by improving the Companys credit ratings from two ratings agencies. |
| Raised $700 million of 10-year unsecured debt capital in March 2016 priced to yield 4.345%, which represented the largest single-tranche debt offering in the Companys history. |
| Increased and extended the unsecured credit facility by $500 million to a total of $3.7 billion during the year while lowering pricing by 2.5 basis points. |
| Successfully raised over $238 million of equity through the ATM program at a significantly lower cost. |
| Deepened relationships with the financial community and was actively involved in industry coalitions including as a member of the Executive Committee and as Treasurer of The National Investment Center for Seniors Housing & Care (NIC). |
42 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
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Ms. Kerr
| Led business development activities to identify, build and manage relationships with health systems, seniors housing operators, real estate developers and financial institutions to grow Welltowers high-quality health care property portfolio leading to transformational transactions with key partners including Belmont Senior Living, Benchmark, Brandywine, Senior Star, SRG and others. |
| Integrated the Seniors Housing and Outpatient Medical Business Development functions into a streamlined management structure and oversaw the expansion of the Companys West Coast (U.S.) offices. |
| Reframed the Investment Committee decision-making process to enhance discipline, employee development and decentralization. |
| Created decision-making framework to systemize the use of joint venture structures. Directed the Companys strategic relationships with Johns Hopkins Medicine and with Hines, a privately-owned global real estate investment firm, through which the Company is developing a senior living community in Midtown Manhattan. |
| Provided market insights throughout the development of the Companys strategic plan. |
| Served as the Companys representative to important industry groups through her participation on the Executive Committee of the American Seniors Housing Association (ASHA), the Board of Counselors for the University of Southern Californias Davis School of Gerontology and the Board of the California Assisted Living Association (CALA). |
Pursuant to the terms of Mr. Brinkers separation agreement with the Company and Mr. Millers retirement agreement with the Company, the Company agreed that the portion of each of Mr. Brinkers and Mr. Millers 2016 annual bonuses with respect to individual performance would be paid at target level. For additional information regarding Mr. Brinkers separation agreement, see Mr. Brinkers Separation Agreement on pages 57-58, and for additional information regarding Mr. Millers retirement agreement, see Mr. Millers Retirement Agreement on page 58.
Annual Incentive Payments
The table below illustrates each executives total annual incentive earnings opportunity, taking into consideration both corporate and individual performance, under the annual incentive program, and the actual bonuses for 2016 performance that were approved at the Compensation Committees February 9, 2017 meeting. For individual performance results, please refer to pages 41-43.
2016 Annual Incentive Opportunity |
2016 Bonus Earned | |||||||||||||||||||
(as a % of Base Salary) | % of Base Salary |
Amount | ||||||||||||||||||
Threshold | Target | High | ||||||||||||||||||
DeRosa | 75 | % | 150 | % | 300 | % | 193 | % | $ | 1,829,950 | ||||||||||
Estes | 75 | % | 150 | % | 260 | % | 166 | % | 845,382 | |||||||||||
Kerr | 75 | % | 150 | % | 300 | % | 190 | % | 920,321 | |||||||||||
Brinker | 75 | % | 150 | % | 300 | % | 180 | % | 872,591 | |||||||||||
Miller | 75 | % | 150 | % | 225 | % | 158 | % | 808,061 |
Long-Term Incentive Plan
The Companys long-term incentive plan consists of rolling three-year forward-looking programs, including the 2015-2017 and 2016-2018 programs and a similar program for 2017-2019, which examine performance across pre-determined key financial metrics (as detailed below). These programs balance both absolute and relative performance and examine how the Company performs across multiple criteria spanning total shareholder return (the largest portion of the program), leverage, growth and revenue sources. The Company believes the long-term incentive program fosters sustained performance and creates short and long-term shareholder value. Under the program, dividends on any unearned shares are not paid until and unless the underlying shares vest, which the Compensation Committee believes is in line with best practices. Taken as a whole, this program emphasizes a pay-for-performance philosophy and promotes enhanced retention of executives.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 43 |
|
Executive CompensationCD&A (continued)
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2015-2017 Long-Term Incentive Program Opportunity
This three-year forward looking program covers the three-year period ending December 31, 2017. The Compensation Committee established goals in early 2015 for the five measures described below (with percentage weightings) based on the Companys internal projections for the three years ending December 31, 2017. The components of the three-year program are consistent with the Companys long-term strategic objectives. As of December 31, 2016, the Company is trending as follows under the program:
Metric | Weighting | Goal Tracking | ||
Total Shareholder Return v. NAREIT Health Care Index | 35% | Below Threshold | ||
Total Shareholder Return v. Morgan Stanley (MSCI) US REIT Index | 15% | Below Threshold | ||
Absolute Total Shareholder Return | 15% | Below Threshold | ||
Adjusted Fixed Charge Coverage | 20% | Between Target/High | ||
Relative Same-Store NOI Growth | 15% | Between High/Extraordinary |
The Compensation Committee has established four achievement levels for each performance measure (threshold, target, high and extraordinary). For Total Shareholder Return v. NAREIT Health Care Index and Total Shareholder Return v. Morgan Stanley (MSCI) US REIT Index, target was set at Index, with threshold 4.0% below Index, high 4.0% above Index and extraordinary 6.0% above Index. For Absolute Total Shareholder Return, target was set at 10.0%, with threshold at 6.0%, high at 14.0% and extraordinary at 18.0%. For the fixed charge coverage metric, target was set in line with the Companys long-term strategic goal. For the same store growth metric, target was set at the average same store growth for a defined group of the Companys health care peers. Awards will be granted based on observed results relative to these measures.
These measures will be evaluated as of December 31, 2017 and any awards granted to the executives under this program will vest as follows: one-third in early 2018, one-third on December 31, 2018 and one-third on December 31, 2019. For each executive, 100% of the award will be based on predefined corporate performance targets. See pages 55-61 for a detailed discussion of potential payments upon termination or change in corporate control.
For the Named Executive Officers, the aggregate award opportunities for the 2015 to 2017 performance period are as follows:
2015-2017 Long-Term Incentive Program Opportunities(1) | ||||||||||||||||
Threshold | Target | High | Extraordinary | |||||||||||||
DeRosa | $2,000,000 | $4,000,000 | $7,500,000 | $10,000,000 | ||||||||||||
Estes | 687,500 | 1,375,000 | 1,718,750 | 2,062,500 | ||||||||||||
Brinker | 712,500 | 1,425,000 | 1,781,250 | 2,137,500 | ||||||||||||
Miller | 637,500 | 1,275,000 | 1,593,750 | 1,912,500 |
(1) | Ms. Kerr is not included in this table because she was not a Named Executive Officer when long-term incentive opportunities were awarded under the 2015-2017 Long-Term Incentive Program. |
The Company intends to provide disclosure regarding actual performance relative to the targets in the proxy materials for the 2018 annual meeting, which will be the first annual meeting following the completion of the three-year performance period.
44 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
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2016-2018 Long-Term Incentive Program Opportunity
This three-year forward looking program covers the three-year period ending December 31, 2018. The Compensation Committee established goals in early 2016 for the five measures described below (with percentage weightings) based on the Companys internal projections for the three years ending December 31, 2018. The components of the three-year program are consistent with the Companys long-term strategic objectives. As of December 31, 2016, the Company is trending as follows under the program:
Metric | Weighting | Goal Tracking | ||
Total Shareholder Return v. NAREIT Health Care Index | 35% | Below Threshold | ||
Total Shareholder Return v. Morgan Stanley (MSCI) US REIT Index | 15% | Below Threshold | ||
Absolute Total Shareholder Return | 15% | Below Threshold | ||
Adjusted Fixed Charge Coverage | 20% | Between Target/High | ||
Private Pay | 15% | Between Target/High |
The Compensation Committee has established four achievement levels for each performance measure (threshold, target, high and extraordinary). For Total Shareholder Return v. NAREIT Health Care Index and Total Shareholder Return v. Morgan Stanley (MSCI) US REIT Index, target was set at Index, with threshold 4.0% below Index, high 4.0% above Index and extraordinary 6.0% above Index. For Absolute Total Shareholder Return, target was set at 8.0%, with threshold at 5.0%, high at 11.0% and extraordinary at 14.0%. For the fixed charge coverage metric and the private pay metric, target was set in line with the Companys long-term strategic goals. Private pay was included as a metric in this program in order to emphasize the importance of reducing revenue payment risk and to align this program with the Companys strategic plan. Awards will be granted based on observed results relative to these measures.
These measures will be evaluated as of December 31, 2018 and any awards granted to the executives under this program will vest as follows: one-third in early 2019, one-third on December 31, 2019 and one-third on December 31, 2020. For each executive, 100% of the award will be based on predefined corporate performance targets. See pages 55-61 for a detailed discussion of potential payments upon termination or change in corporate control.
For the Named Executive Officers, the aggregate award opportunities for the 2016 to 2018 performance period are as follows:
2016-2018 Long-Term Incentive Program Opportunities | ||||||||||||||||
Threshold | Target | High | Extraordinary | |||||||||||||
DeRosa | $ | 2,850,000 | $ | 5,700,000 | $ | 10,687,500 | $ | 14,250,000 | ||||||||
Estes | 862,500 | 1,725,000 | 2,156,250 | 2,587,500 | ||||||||||||
Kerr | 887,500 | 1,775,000 | 2,218,750 | 2,662,500 | ||||||||||||
Brinker | 887,500 | 1,775,000 | 2,218,750 | 2,662,500 | ||||||||||||
Miller | 637,500 | 1,275,000 | 1,593,750 | 1,912,500 |
The Company intends to provide disclosure regarding actual performance relative to the targets in the proxy materials for the 2019 annual meeting, which will be the first annual meeting following the completion of the three-year performance period.
Compensation Overview for 2016 and 2015 Performance
In order to provide shareholders with a more complete picture of the compensation of the NEOs, the Company is providing additional compensation information not required by the SEC. The table below discloses the grant date fair value of equity awards granted on February 12, 2016 as being compensation for the Named Executive Officers in 2015 because these grants are based on the Companys performance in 2015.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 45 |
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Executive CompensationCD&A (continued)
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The table below does not include the same information as the Summary Compensation Table. Rather, it is intended to provide supplemental information. The following table and notes should be read in conjunction with the Summary Compensation Table and the tables and narrative descriptions that follow such table.
Name | Performance Year |
Salary ($) |
Annual Incentive Cash Award ($)(1) |
Backward- Program ($)(2)(3) |
Forward- Looking Long- Program ($)(3)(4) |
Total ($)(5) |
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DeRosa | 2016 | 950,000 | 1,829,950 | 0 | 5,700,000 | 8,479,950 | ||||||||||||||||
2015 | 950,000 | 2,291,705 | 4,515,363 | 4,000,000 | 11,757,068 | |||||||||||||||||
Estes | 2016 | 510,000 | 845,382 | 0 | 1,725,000 | 3,080,382 | ||||||||||||||||
2015 | 510,000 | 1,091,691 | 815,021 | 1,375,000 | 3,791,712 | |||||||||||||||||
Kerr | 2016 | 391,232 | 920,321 | 0 | 1,775,000 | 3,086,553 | ||||||||||||||||
2015 | 324,612 | 286,314 | 789,126 | 0 | 1,400,052 | |||||||||||||||||
Brinker | 2016 | 484,500 | 872,591 | 0 | 1,775,000 | 3,132,091 | ||||||||||||||||
2015 | 484,500 | 1,150,964 | 846,954 | 1,425,000 | 3,907,418 | |||||||||||||||||
Miller | 2016 | 510,000 | 808,061 | 0 | 1,275,000 | 2,593,061 | ||||||||||||||||
2015 | 510,000 | 961,769 | 735,162 | 1,275,000 | 3,481,931 |
(1) | The amounts reported in this column are the same as the amounts reported in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on pages 48-49. |
(2) | The amounts reported in this column reflect the fair value on the grant date of the awards given to the NEOs shortly following the particular year and that, in the Compensation Committees view, are intended to serve as compensation for that particular year (e.g., the grant-date fair value of the awards that were granted on February 12, 2016 are shown as compensation for 2015; and the grant-date fair value of the awards that were granted on February 5, 2015 are excluded as they were viewed as compensation for 2014). The aggregate value of the awards granted to the NEOs with respect to 2015 performance was comprised entirely of restricted stock. The closing price of the Companys common stock on the grant date (February 12, 2016) was $54.40. |
(3) | For a discussion of the assumptions and methodologies used to determine the grant-date fair value of the equity awards, please see note 5 to the Summary Compensation Table on pages 48-49. |
(4) | For the 2016-2018 program, the values are based upon the probable outcome of the performance conditions as of the grant date for the awards, which were $5,700,000 for Mr. DeRosa, $1,725,000 for Mr. Estes, $1,775,000 for Ms. Kerr, $1,775,000 for Mr. Brinker and $1,275,000 for Mr. Miller. The maximum value of the awards under the 2016-2018 program (determined on the grant date) (assuming that the highest level of performance is achieved) are $14,250,000 for Mr. DeRosa, $2,587,500 for Mr. Estes, $2,662,500 for Ms. Kerr, $2,662,500 for Mr. Brinker and $1,912,500 for Mr. Miller. |
For the 2015-2017 program, the values are based upon the probable outcome of the performance conditions as of the grant date for the awards, which were $4,000,000 for Mr. DeRosa, $1,375,000 for Mr. Estes, $1,425,000 for Mr. Brinker and $1,275,000 for Mr. Miller. The maximum value of the awards under the 2015-2017 program (determined on the grant date) (assuming that the highest level of performance is achieved) are $10,000,000 for Mr. DeRosa, $2,062,500 for Mr. Estes, $2,137,500 for Mr. Brinker and $1,912,500 for Mr. Miller. Ms. Kerr did not participate in the 2015-2017 program. |
(5) | The amounts reported in the All Other Compensation column of the Summary Compensation Table (or that will be included in such column in future proxy statements) are excluded from the table above and are not reflected in the Total Compensation column. |
Benefits and Perquisites
The following summarizes various benefits and perquisites received by the NEOs.
NEOs are eligible to participate in the same benefit programs as all other Company employees, including health and dental insurance, group life insurance, short and long-term disability coverage, partial reimbursement of health club/gym membership fees and participation in the Companys tax-qualified retirement plan and trust (the 401(k) Plan). In addition, Mr. DeRosa received certain perquisites in 2016, including:
| Automobile allowancemonthly allowance to cover expenses incurred with the lease of an automobile. |
| Medical insurance premiumsincludes medical insurance premiums to provide Mr. DeRosa and his family with coverage consistent with his prior individual health insurance coverage. |
| Spousal travel expensesthe spouses (and, in certain circumstances, immediate family members) of executives, including Mr. DeRosas spouse, are invited to attend certain of the Companys business events. |
In 2016, Mr. Estes, Ms. Kerr and Mr. Miller also received spousal travel expenses.
The Compensation Committee reviews the Companys policies with respect to perquisites on a regular basis. The NEOs are entitled to receive these perquisites in 2017. See note 7 to the Summary Compensation Table for additional information regarding perquisites, including the dollar values of the perquisites provided by the Company in 2016.
46 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive CompensationCD&A (continued)
|
|
Ownership Guidelines
Executive officers are required to own shares of the Companys common stock with a fair market value of at least three times their base salary (five times for the Chief Executive Officer). Non-employee directors are required to own shares of the Companys common stock with a fair market value of at least four times the annual cash fees. Shares owned directly and indirectly, restricted shares and deferred stock units count towards these ownership requirements, but unexercised stock options do not. Executive officers have five years from their date of hire to achieve the required ownership level and non-employee directors have five years from their date of appointment or February 7, 2013, whichever is later, to achieve the required ownership level. As of December 31, 2016, each of the NEOs and the non-employee directors were in compliance with these ownership requirements.
Tax Deductibility of Executive Compensation
The Compensation Committee has considered the anticipated tax treatment to the Company regarding the compensation and benefits paid to the NEOs under Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). In general, Section 162(m) places a limit on the amount of compensation that may be deducted annually by the Company with respect to certain executive officers. The Compensation Committee will strive to provide executive officers with attractive, well-designed compensation packages that will generally preserve the deductibility of such payments for the Company. Certain types of compensation payments and their deductibility depend upon the timing of an executive officers vesting or exercise of previously granted rights. Moreover, interpretations of any changes in the tax laws and other factors beyond the Compensation Committees control may affect the deductibility of certain compensation payments. Because the Company operates in such a manner that it will qualify as a REIT under the Code, and therefore is not subject to federal income taxes to the extent the Company distributes at least 90% of its REIT taxable income, the possible loss of this deduction would not be expected to have material adverse consequences for the Company. If deductibility becomes an issue, the Compensation Committee will consider various alternatives to preserve the deductibility of compensation payments to executive officers and benefits to the extent reasonably practical and to the extent consistent with its other compensation objectives, but the Compensation Committee reserves the right to make incentive-based awards not exempt from these limits where such awards are appropriate.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis of the Company with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the Compensation Discussion and Analysis in this Proxy Statement.
Submitted by the Compensation Committee
Sharon M. Oster, Compensation Committee Chair
Kenneth J. Bacon, Compensation Committee Member
Timothy J. Naughton, Compensation Committee Member
Judith C. Pelham, Compensation Committee Member
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 47 |
|
Executive Compensation (continued)
|
The table below presents the total compensation awarded to, earned by, or paid to the NEOs.
Name and Principal Position | Year | Salary ($) | |
Stock Awards ($)(5) |
|
|
Non-Equity Incentive Plan ($) |
|
|
All Other Compensation ($)(7) |
|
|
Total Compensation ($)(8) |
| ||||||||||
Thomas J. DeRosa | 2016 | 950,000 | 10,215,363 | 1,829,950 | 739,041 | 13,734,354 | ||||||||||||||||||
Chief Executive Officer(1) | 2015 | 950,000 | 7,677,105 | 2,291,705 | 48,436 | 10,967,246 | ||||||||||||||||||
2014 | 590,721 | 5,960,000 | 1,530,926 | (6) | 95,174 | 8,176,821 | ||||||||||||||||||
Scott A. Estes | 2016 | 510,000 | 2,540,021 | 845,382 | 516,792 | 4,412,195 | ||||||||||||||||||
Executive Vice President - | 2015 | 510,000 | 2,303,949 | 1,091,691 | 56,381 | 3,962,021 | ||||||||||||||||||
Chief Financial Officer | 2014 | 467,893 | 526,781 | 1,078,177 | 27,319 | 2,100,170 | ||||||||||||||||||
Mercedes T. Kerr | 2016 | 391,232 | 2,564,126 | 920,321 | 14,958 | 3,890,637 | ||||||||||||||||||
Executive Vice President - Business & Relationship Management(2) | ||||||||||||||||||||||||
Scott M. Brinker | 2016 | 484,500 | 2,621,954 | 872,591 | 482,957 | 4,462,002 | ||||||||||||||||||
Former Executive Vice President - | 2015 | 484,500 | 2,382,438 | 1,150,964 | 29,295 | 4,047,197 | ||||||||||||||||||
Chief Investment Officer(3) | 2014 | 457,477 | 556,778 | 1,164,244 | 13,000 | 2,191,499 | ||||||||||||||||||
Jeffrey H. Miller | 2016 | 510,000 | 2,010,162 | 808,061 | 518,440 | 3,846,663 | ||||||||||||||||||
Former Executive Vice President - | 2015 | 510,000 | 2,132,931 | 961,769 | 56,302 | 3,661,002 | ||||||||||||||||||
Chief Operating Officer(4) | 2014 | 467,893 | 516,763 | 926,888 | 27,031 | 1,938,575 |
(1) | On April 13, 2014, Mr. DeRosa was appointed to serve as Chief Executive Officer of the Company. This table does not include compensation paid to Mr. DeRosa in 2014 as a non-employee director before he became the Chief Executive Officer. Please see the 2014 Director Compensation Table in the Companys Definitive Proxy Statement on Schedule 14A filed with the SEC on March 27, 2015 for information regarding Mr. DeRosas compensation as a non-employee director prior to his appointment as Chief Executive Officer. |
(2) | No compensation information is provided for the years in which Ms. Kerr was not a Named Executive Officer. |
(3) | On January 3, 2017, Mr. Brinkers position as the Executive Vice President - Chief Investment Officer of the Company was eliminated. |
(4) | On January 31, 2017, Mr. Miller retired as the Executive Vice President - Chief Operating Officer of the Company. |
(5) | Amounts set forth in this column represent the grant-date fair value calculated in accordance with FASB ASC Topic 718 (excluding the effect of possible forfeitures (in accordance with SEC rules) for awards subject to time-based vesting and awards subject to performance conditions). |
The amounts for 2016 represent the following:
For the Named Executive Officers:
| the value of restricted stock awards ($4,515,363 for Mr. DeRosa, $815,021 for Mr. Estes, $789,126 for Ms. Kerr, $846,954 for Mr. Brinker and $735,162 for Mr. Miller) granted in early 2016 for 2015 performance, which represent the final grants under the prior backward-looking long-term incentive program; and |
| the awards for the aggregate 2016-2018 Long-Term Incentive Program (see below and page 45 for additional information regarding this program). |
The amounts for 2015 represent the following:
For the Named Executive Officers (except for Ms. Kerr):
| the value of restricted stock awards granted in early 2015 for 2014 performance; and |
| the awards for the aggregate 2015-2017 Long-Term Incentive Program (see below and page 44 for additional information regarding this program). |
The amounts for 2014 represent the following:
For Mr. DeRosa:
| $4,960,000 of awards for the aggregate 2013-2015 Long-Term Incentive Program (the grant date for these awards was on April 13, 2014, the date Mr. DeRosa was appointed to serve as Chief Executive Officer); and |
| $1,000,000 of performance-based restricted stock units (15,618 units) that were granted pursuant to a performance-based restricted stock unit grant agreement. See the 2016 Nonqualified Deferred Compensation Table on page 54 for additional information regarding this award. The value of this award was based on the probable outcome of the performance conditions as of the grant date for the award, which was $1,000,000. |
For all other Named Executive Officers (except for Ms. Kerr):
| the value of the restricted stock awards granted in early 2014 for 2013 performance. |
For the 2013-2015 program, the values are based upon the probable outcome of the performance conditions as of the grant date for the awards, which was $4,960,000 for Mr. DeRosa. The maximum value of the awards under the 2013-2015 program (determined on the grant date) (assuming that the highest level of performance is achieved) is $7,300,685 for Mr. DeRosa.
For the 2015-2017 program, the values are based upon the probable outcome of the performance conditions as of the grant date for the awards, which were $4,000,000 for Mr. DeRosa, $1,375,000 for Mr. Estes, $1,425,000 for Mr. Brinker and $1,275,000 for Mr. Miller. The maximum value of the awards under the 2015-2017 program (determined on the grant date) (assuming that the highest level of performance is achieved) are $10,000,000 for Mr. DeRosa, $2,062,500 for Mr. Estes, $2,137,500 for Mr. Brinker and $1,912,500 for Mr. Miller.
48 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive Compensation (continued)
|
|
For the 2016-2018 program, the values are based upon the probable outcome of the performance conditions as of the grant date for the awards, which were $5,700,000 for Mr. DeRosa, $1,725,000 for Mr. Estes, $1,775,000 for Ms. Kerr, $1,775,000 for Mr. Brinker and $1,275,000 for Mr. Miller. The maximum value of the awards under the 2016-2018 program (determined on the grant date) (assuming that the highest level of performance is achieved) are $14,250,000 for Mr. DeRosa, $2,587,500 for Mr. Estes, $2,662,500 for Ms. Kerr, $2,662,500 for Mr. Brinker and $1,912,500 for Mr. Miller.
For restricted stock grants to the Named Executive Officers, the values are based on the share prices on the respective dates of grant (or, if the date of grant was not a trading day, the last trading day prior to the date of grant), which were $54.40, $81.63, and $56.28 for grants on February 12, 2016, February 5, 2015 and February 6, 2014, respectively.
(6) | Mr. DeRosas annual cash incentive award for 2014 is prorated based on the portion of 2014 during which he served as Chief Executive Officer. |
(7) | All Other Compensation includes the following: |
Name | |
Company Contribution to 401(k) Plan ($) |
|
Value of DER Payments on Deferred Stock Units ($)(a) |
|
Value of DER Payments on 2013-2015 LTIP Awards |
|
|
Spousal Travel Expenses |
|
|
Automobile Allowance ($)(c) |
|
Medical Insurance Premiums ($)(c) |
|
Total ($) |
||||||||||||
DeRosa | 13,250 | 0 | 691,021 | 1,217 | 17,281 | 16,272 | 739,041 | |||||||||||||||||||||
Estes | 13,250 | 54,513 | 447,907 | 1,122 | 0 | 0 | 516,792 | |||||||||||||||||||||
Kerr | 13,250 | 0 | 0 | 1,708 | 0 | 0 | 14,958 | |||||||||||||||||||||
Brinker | 13,250 | 21,800 | 447,907 | 0 | 0 | 0 | 482,957 | |||||||||||||||||||||
Miller | 13,250 | 54,513 | 447,907 | 2,770 | 0 | 0 | 518,440 |
(a) | Represents dividend equivalent rights (DER) payments on certain deferred stock unit awards that were paid on February 15, 2016 upon vesting of the underlying performance awards (rather than currently). The value of such DER payments was not included in the grant date fair value of the performance awards. |
(b) | Represents DER payments on certain awards for the 2013-2015 Long-Term Incentive Program that were paid upon vesting of the underlying awards (rather than currently). The value of such DER payments was not included in the grant date fair value of the awards. |
(c) | See Compensation Discussion and AnalysisBenefits and Perquisites for additional information regarding (i) the automobile allowance paid by the Company on behalf of Mr. DeRosa; (ii) the medical insurance premiums paid by the Company on behalf of Mr. DeRosa; and (iii) the spousal travel expenses paid by the Company. |
(8) | As explained in note 5 above, the Total Compensation amounts for 2016 include $5,700,000 for Mr. DeRosa, $1,725,000 for Mr. Estes, $1,775,000 for Mr. Brinker, $1,775,000 for Ms. Kerr and $1,275,000 for Mr. Miller for aggregate awards they might receive under the 2016-2018 program. Amounts for 2015 include $4,000,000 for Mr. DeRosa, $1,375,000 for Mr. Estes, $1,425,000 for Mr. Brinker and $1,275,000 for Mr. Miller for aggregate awards they might receive under the 2015-2017 program. Amounts for 2014 include $4,960,000 for Mr. DeRosa for aggregate awards he might receive under the 2013-2015 program. |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 49 |
|
Executive Compensation (continued)
|
2016 Grants of Plan-Based Awards Table
The table below provides information regarding grants of awards to the NEOs under the Companys long-term incentive plans.
Estimated Future Payments Under Non-Equity Incentive Plan Awards |
Estimated Future Payments Under Equity Incentive Plan Awards |
Stock Awards: Number of |
Grant Date Fair Value and Option ($)(4) |
|||||||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) |
Target ($) |
Maximum ($) |
Threshold ($) |
Target ($) |
High ($) |
Maximum ($) |
||||||||||||||||||||||||||||||||
Thomas J. DeRosa | | (1) | 712,500 | 1,425,000 | 2,850,000 | |||||||||||||||||||||||||||||||||||
5/6/16 | (2) | 2,850,000 | 5,700,000 | 10,687,500 | 14,250,000 | 5,700,000 | ||||||||||||||||||||||||||||||||||
2/12/16 | (3) | 83,003 | 4,515,363 | |||||||||||||||||||||||||||||||||||||
Scott A. Estes | | (1) | 382,500 | 765,000 | 1,326,000 | |||||||||||||||||||||||||||||||||||
5/6/16 | (2) | 862,500 | 1,725,000 | 2,156,250 | 2,587,500 | 1,725,000 | ||||||||||||||||||||||||||||||||||
2/12/16 | (3) | 14,982 | 815,021 | |||||||||||||||||||||||||||||||||||||
Mercedes T. Kerr | | (1) | 363,375 | 726,750 | 1,453,500 | |||||||||||||||||||||||||||||||||||
5/6/16 | (2) | 887,500 | 1,775,000 | 2,218,750 | 2,662,500 | 1,775,000 | ||||||||||||||||||||||||||||||||||
2/12/16 | (3) | 14,506 | 789,126 | |||||||||||||||||||||||||||||||||||||
Scott M. Brinker | | (1) | 363,375 | 726,750 | 1,453,500 | |||||||||||||||||||||||||||||||||||
5/6/16 | (2) | 887,500 | 1,775,000 | 2,218,750 | 2,662,500 | 1,775,000 | ||||||||||||||||||||||||||||||||||
2/12/16 | (3) | 15,569 | 846,954 | |||||||||||||||||||||||||||||||||||||
Jeffrey H. Miller | | (1) | 382,500 | 765,000 | 1,147,500 | |||||||||||||||||||||||||||||||||||
5/6/16 | (2) | 637,500 | 1,275,000 | 1,593,750 | 1,912,500 | 1,275,000 | ||||||||||||||||||||||||||||||||||
2/12/16 | (3) | 13,514 | 735,162 |
(1) | Represents annual incentive program earnings opportunity for 2016. The actual amount earned by each of the NEOs under the annual incentive program in 2016 was paid in 2017 and is shown in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. |
(2) | Represents long-term incentive earnings opportunity under the 2016-2018 Long-Term Incentive Program. The performance measures under this program will be evaluated as of December 31, 2018. Any award earned will be paid in shares of restricted stock. Any restricted shares granted will vest as follows: one-third in early 2019, one-third on December 31, 2019 and one-third on December 31, 2020 (subject to earlier evaluation and vesting in connection with a change in corporate control or a qualified termination of employment). See page 45 for additional information regarding the 2016-2018 program. |
(3) | Shares of restricted stock were granted on February 12, 2016 for performance in 2015. The restrictions on restricted stock lapse in four equal installments25% on the grant date and 25% on each of the first three anniversaries of the date of grant. The grant date fair value is based on a per share grant price of $54.40, the closing price of the Companys common stock on February 12, 2016, the date of the grant. |
(4) | Amounts set forth in this column represent the grant-date fair value calculated in accordance with FASB ASC Topic 718. For the assumptions and methodologies used to value the awards reported in this column, see note 5 to the Summary Compensation Table. |
50 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive Compensation (continued)
|
|
The Company has employment agreements with each of Mr. DeRosa, Mr. Estes and Ms. Kerr. During 2016, the Company also had employment agreements with each of Mr. Brinker and Mr. Miller; however, on January 3, 2017, Mr. Brinkers position as the Executive Vice President - Chief Investment Officer of the Company was eliminated and his employment agreement was terminated as of that date and, on January 31, 2017, Mr. Miller retired as the Executive Vice President - Chief Operating Officer of the Company and his employment agreement was terminated as of that date.
For a description of the provisions of the agreements regarding compensation and benefits payable upon termination or a change in corporate control, see Potential Payments Upon Termination or Change in Corporate Control on pages 55-58.
EMPLOYMENT AGREEMENT WITH THOMAS J. DEROSA
For a description of Mr. DeRosas employment agreement, see Mr. DeRosas Amended and Restated Employment Agreement on page 37.
EMPLOYMENT AGREEMENTS WITH SCOTT A. ESTES AND MERCEDES T. KERR
The Company has entered into employment agreements with each of Scott A. Estes, Executive Vice President - Chief Financial Officer of the Company, and Mercedes T. Kerr, Executive Vice President - Business & Relationship Management of the Company, which expire on January 31, 2019 and January 31, 2018, respectively, and provide for optional successive two-year renewal terms. Each of these NEOs receives a base salary that is reviewed and adjusted each year by the Compensation Committee and is eligible to receive discretionary annual bonuses and equity awards under the Companys long-term incentive plans.
EMPLOYMENT AND SEPARATION AGREEMENTS WITH SCOTT M. BRINKER
On January 3, 2017, Mr. Brinkers position as the Executive Vice President - Chief Investment Officer of the Company was eliminated and his employment agreement was terminated as of that date. Mr. Brinker, under his employment agreement, received a base salary that was reviewed and adjusted each year by the Compensation Committee and was eligible to receive discretionary annual bonuses and equity awards under the Companys long-term incentive plans. In connection with his departure, the Company and Mr. Brinker entered into a separation agreement pursuant to which Mr. Brinker received certain benefits set forth in his employment agreement.
EMPLOYMENT AND RETIREMENT AGREEMENTS WITH JEFFREY H. MILLER
On January 31, 2017, Mr. Miller retired as the Executive Vice President - Chief Operating Officer of the Company and his employment agreement was terminated as of that date. Mr. Miller, under his employment agreement, received a base salary that was reviewed and adjusted each year by the Compensation Committee and was eligible to receive discretionary annual bonuses and equity awards under the Companys long-term incentive plans. In connection with Mr. Millers retirement, he and the Company entered into a retirement agreement pursuant to which Mr. Miller received certain benefits set forth in his employment agreement.
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 51 |
|
Executive Compensation (continued)
|
2016 Outstanding Equity Awards at Fiscal Year-End Table
The table below provides information regarding outstanding equity-based awards granted to the NEOs under the Companys long-term incentive plans.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Grant Date |
# of Options |
# of Options |
Option Exercise Price ($) |
Option Expiration Date |
# of Shares or Units of Stock That Have Not Vested |
Market Have Not |
Equity Incentive Plan Awards: # of Unearned Shares, Units or Other Rights That Have Not Yet Vested |
Equity Incentive Plan Awards: Market
or Unearned That Have Not ($) |
|||||||||||||||||||||||||||
Thomas J. DeRosa(1) | 2/12/16 | 62,252 | 4,166,526 | (3) | ||||||||||||||||||||||||||||||||
2/5/15 | 22,522 | 1,507,397 | (4) | |||||||||||||||||||||||||||||||||
7/30/14 | 5,206 | 348,438 | (5) | |||||||||||||||||||||||||||||||||
4/13/14 | 35,193 | 2,355,467 | (6) | |||||||||||||||||||||||||||||||||
2/5/15 | 59,764 | 4,000,000 | (10) | |||||||||||||||||||||||||||||||||
2/12/16 | 85,164 | 5,700,000 | (11) | |||||||||||||||||||||||||||||||||
Scott A. Estes | 1/26/12 | 19,444 | 4,861 | 57.33 | 1/26/22 | (2) | ||||||||||||||||||||||||||||||
1/27/11 | 19,482 | 0 | 49.17 | 1/27/21 | (2) | |||||||||||||||||||||||||||||||
1/28/10 | 23,776 | 0 | 43.29 | 1/28/20 | (2) | |||||||||||||||||||||||||||||||
1/29/09 | 3,192 | 0 | 37.00 | 1/29/19 | (2) | |||||||||||||||||||||||||||||||
2/12/16 | 11,236 | 752,025 | (3) | |||||||||||||||||||||||||||||||||
2/5/15 | 5,690 | 380,832 | (4) | |||||||||||||||||||||||||||||||||
2/6/14 | 2,340 | 156,616 | (7) | |||||||||||||||||||||||||||||||||
2/7/13 | 14,356 | 960,847 | (6) | |||||||||||||||||||||||||||||||||
2/7/13 | 9,610 | 643,197 | (8) | |||||||||||||||||||||||||||||||||
1/26/12 | 2,826 | 189,144 | (8) | |||||||||||||||||||||||||||||||||
1/26/12 | 4,360 | 291,815 | (9) | |||||||||||||||||||||||||||||||||
2/5/15 | 20,544 | 1,375,000 | (10) | |||||||||||||||||||||||||||||||||
2/12/16 | 25,774 | 1,725,000 | (11) | |||||||||||||||||||||||||||||||||
Mercedes T. Kerr | 1/26/12 | 1,035 | 517 | 57.33 | 1/26/22 | (2) | ||||||||||||||||||||||||||||||
1/27/11 | 2,239 | 0 | 49.17 | 1/27/21 | (2) | |||||||||||||||||||||||||||||||
1/28/10 | 551 | 0 | 43.29 | 1/28/20 | (2) | |||||||||||||||||||||||||||||||
2/12/16 | 14,506 | 970,887 | (3) | |||||||||||||||||||||||||||||||||
2/5/15 | 4,062 | 271,870 | (4) | |||||||||||||||||||||||||||||||||
2/6/14 | 2,498 | 167,191 | (7) | |||||||||||||||||||||||||||||||||
2/7/13 | 2,582 | 172,813 | (8) | |||||||||||||||||||||||||||||||||
1/26/12 | 545 | 36,477 | (8) | |||||||||||||||||||||||||||||||||
2/12/16 | 26,521 | 1,775,000 | (11) | |||||||||||||||||||||||||||||||||
Scott M. Brinker | 1/26/12 | 1,099 | 3,600 | 57.33 | 1/26/22 | (2) | ||||||||||||||||||||||||||||||
1/27/11 | 2,338 | 0 | 49.17 | 1/27/21 | (2) | |||||||||||||||||||||||||||||||
1/28/10 | 1,745 | 0 | 43.29 | 1/28/20 | (2) | |||||||||||||||||||||||||||||||
2/12/16 | 11,676 | 781,475 | (3) | |||||||||||||||||||||||||||||||||
2/5/15 | 5,864 | 392,478 | (4) | |||||||||||||||||||||||||||||||||
2/6/14 | 2,473 | 165,518 | (7) | |||||||||||||||||||||||||||||||||
2/7/13 | 14,356 | 960,847 | (6) | |||||||||||||||||||||||||||||||||
2/7/13 | 10,439 | 698,682 | (8) | |||||||||||||||||||||||||||||||||
1/26/12 | 2,093 | 140,084 | (8) | |||||||||||||||||||||||||||||||||
1/26/12 | 1,744 | 116,726 | (9) | |||||||||||||||||||||||||||||||||
2/5/15 | 21,291 | 1,425,000 | (10) | |||||||||||||||||||||||||||||||||
2/12/16 | 26,521 | 1,775,000 | (11) | |||||||||||||||||||||||||||||||||
Jeffrey H. Miller | 1/26/12 | 0 | 4,820 | 57.33 | 1/26/22 | (2) | ||||||||||||||||||||||||||||||
2/12/16 | 10,135 | 678,336 | (3) | |||||||||||||||||||||||||||||||||
2/5/15 | 5,254 | 351,650 | (4) | |||||||||||||||||||||||||||||||||
2/6/14 | 2,295 | 153,604 | (7) | |||||||||||||||||||||||||||||||||
2/7/13 | 14,356 | 960,847 | (6) | |||||||||||||||||||||||||||||||||
2/7/13 | 9,610 | 643,197 | (8) | |||||||||||||||||||||||||||||||||
1/26/12 | 2,802 | 187,538 | (8) | |||||||||||||||||||||||||||||||||
1/26/12 | 4,360 | 291,815 | (9) | |||||||||||||||||||||||||||||||||
2/5/15 | 19,050 | 1,275,000 | (10) | |||||||||||||||||||||||||||||||||
2/12/16 | 19,050 | 1,275,000 | (11) |
52 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive Compensation (continued)
|
|
(1) | Outstanding equity awards for Mr. DeRosa do not include outstanding deferred stock unit awards granted in connection with his service as a non-employee director prior to his appointment as Chief Executive Officer as listed in the table below. The market value of these awards is based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. These deferred stock unit grants vest in three equal installments on the first three anniversaries of the date of grant. |
Grant Date | |
Number of Units That Have Not Vested |
|
|
Market Value of Units That Have Not Vested ($) |
| ||
2/6/14 | 562 | $37,615 |
(2) | These options vest ratably over five years on the first five anniversaries of the date of grant and expire on the tenth anniversary of the date of grant. |
(3) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. On February 12, 2016, one-fourth of the shares of restricted stock vested. The remaining shares of restricted stock vest in three equal installments on January 15, 2017, January 15, 2018 and January 15, 2019. |
(4) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. On each of February 5, 2015, and January 15, 2016, one-fourth of the shares of restricted stock vested. The remaining shares of restricted stock vest in two equal installments on January 15, 2017 and January 15, 2018. |
(5) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. In connection with his appointment as CEO, Mr. DeRosa was granted 15,618 performance-based restricted stock units on July 30, 2014 pursuant to a performance-based restricted stock unit grant agreement. In 2015, the Compensation Committee determined that Mr. DeRosa had met the performance vesting criteria for these performance-based restricted stock units because he and the Company satisfied certain performance conditions during the one-year performance period ending April 12, 2015. One-third of the performance-based restricted stock units vested on May 6, 2015; one-third vested on April 13, 2016; and one-third will vest on April 13, 2017. See the 2016 Nonqualified Deferred Compensation Table on page 54 for additional information regarding these performance-based restricted stock units. |
(6) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. The number and market or payout value of the awards under the 2013-2015 Long-Term Incentive Program was based on corporate performance during the three-year performance period ended December 31, 2015. These awards vest in three equal installments one-third vested on February 26, 2016, the date that the Compensation Committee determined the size of the awards; one-third vested on December 31, 2016; and one-third will vest on December 31, 2017. |
(7) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. On each of February 6, 2015, January 15, 2015 and January 15, 2016, one-fourth of the shares of restricted stock vested. The remaining shares of restricted stock vest on January 15, 2017. |
(8) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. The restrictions on the shares of restricted stock lapse ratably over five years on the first five anniversaries of the grant date. |
(9) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. On each of January 31, 2012, 2015, 2016 and 2017, one-fourth of the deferred stock units vest. |
(10) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. The number and market or payout value of the awards under the 2015-2017 Long-Term Incentive Program is based on target performance because corporate performance in the first two years of the three-year performance period exceeded threshold performance. See page 44 for additional information regarding the 2015-2017 program. |
(11) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. The number and market or payout value of the awards under the 2016-2018 Long-Term Incentive Program is based on target performance because corporate performance in the first year of the three-year performance period exceeded threshold performance. See page 45 for additional information regarding the 2016-2018 program. |
2016 Option Exercises and Stock Vested Table
The table below provides information regarding the dollar amounts realized pursuant to the vesting or exercise of equity-based awards during 2016 for the NEOs.
Option Awards | Stock Awards | |||||||||||||||
Name | |
# of Shares Acquired on Exercise |
|
|
Value Realized Upon Exercise ($) |
|
|
# of Shares Acquired on Vesting |
|
|
Value Realized on Vesting ($) |
| ||||
Thomas J. DeRosa(1) | 0 | 0 | 108,680 | 6,987,813 | ||||||||||||
Scott A. Estes | 15,962 | 612,107 | 51,918 | 3,372,343 | ||||||||||||
Mercedes T. Kerr | 0 | 0 | 5,095 | 337,900 | ||||||||||||
Scott M. Brinker | 19,718 | 452,353 | 47,677 | 3,100,057 | ||||||||||||
Jeffrey H. Miller | 23,277 | 518,149 | 51,322 | 3,337,191 |
(1) | Includes 1,074 deferred stock units that vested in connection with his service as a non-employee director prior to his appointment as Chief Executive Officer. |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 53 |
|
Executive Compensation (continued)
|
2016 Nonqualified Deferred Compensation Table
In connection with his appointment as CEO, Mr. DeRosa was granted 15,618 performance-based restricted stock units pursuant to a performance-based restricted stock unit grant agreement. In 2015, the Compensation Committee determined that Mr. DeRosa had met the performance vesting criteria for these performance-based restricted stock units because he and the Company satisfied certain performance conditions during the one-year performance period ending April 12, 2015. One-third of the performance-based restricted stock units vested on May 6, 2015; one-third vested on April 13, 2016; and one-third will vest on April 13, 2017. Under the terms of the grant agreement, settlement of the award will be automatically deferred until the earliest of Mr. DeRosas separation from service (as defined under Section 409A of the Code), his death or a change in control of the Company. The performance-based restricted stock units are paid in shares of common stock on a one-for-one basis. The table below sets forth the value, as of the vesting date, of the portion of the performance-based restricted stock units that vested in 2016 and the aggregate value, as of December 30, 2016, the last trading day of 2016, of the portion of the performance-based restricted stock units that were vested as of December 31, 2016.
Name | |
Executive Contributions in Last FY |
|
|
Registrant Contributions in Last FY |
|
|
Aggregate Earnings in Last FY |
|
|
Aggregate Withdrawals/ Distributions |
|
|
Aggregate Balance at Last FY |
| |||||
Thomas J. DeRosa | $ | 362,546(1) | | $ | (2,906)(2) | | $ | 696,875(3) |
(1) | Based on a share price of $69.64, the closing price of the Companys common stock on April 13, 2016. The amount in this column represents the value, as determined on April 13, 2016, of 5,206 shares of common stock underlying the performance-based restricted stock units granted to Mr. DeRosa, which vested on April 13, 2016. Settlement of these units was mandatorily deferred pursuant to the terms of the award. The grant date fair value of the award is included in the Stock Awards column of the Summary Compensation Table for 2014. |
(2) | Consists of: (a) $17,909 of accrued dividends on the performance-based restricted stock units that vested on May 6, 2015 for the year ended December 31, 2016; (b) $13,088 of accrued dividends on the performance-based restricted stock units that vested on April 13, 2016 from the vesting date to December 31, 2016; and (c) a $33,903 decrease in the value of the performance-based restricted stock units (calculated by subtracting the value of the units at each vesting date from the value of the units at December 31, 2016). |
(3) | Based on a share price of $66.93, the closing price of the Companys common stock on December 30, 2016, the last trading day of 2016. |
54 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive Compensation (continued)
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|
Potential Payments Upon Termination or Change in Corporate Control
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 55 |
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Executive Compensation (continued)
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56 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive Compensation (continued)
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Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 57 |
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Executive Compensation (continued)
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58 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive Compensation (continued)
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The table below reflects estimates of the amounts of compensation that would be paid to the NEOs in the event of their termination. The amounts assume that such termination was effective as of December 31, 2016. The actual amounts to be paid to a NEO can only be determined at the time of such executives separation from the Company. The employment of each of Mr. Brinker and Mr. Miller ended at the beginning of 2017 (January 3 and January 31, respectively). The actual amounts to which Mr. Brinker became entitled pursuant to his separation agreement and the actual amounts to which Mr. Miller became entitled pursuant to his retirement agreement are described above in the narrative disclosure of the section entitled Potential Payments Upon Termination or Change in Corporate Control.
Name/Type of Termination | |
Cash Severance ($)(5) |
|
Continued Benefits ($)(6) |
|
Accelerated Vesting of Unvested Equity Compensation ($)(7) |
|
Excise Tax Gross-Up ($)(8) |
|
Total ($) |
||||||||||
Thomas J. DeRosa(1) |
||||||||||||||||||||
For Cause or Resignation without Good Reason | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Death or Disability | 0 | 0 | 10,661,296 | 0 | 10,661,296 | |||||||||||||||
Involuntary Termination without Cause or Resignation for Good Reason | 4,724,858 | 29,686 | 10,661,296 | 0 | 15,415,840 | |||||||||||||||
Involuntary Termination without Cause or Resignation following a Change in Corporate Control |
8,517,366 | 29,686 | 13,227,963 | 0 | 21,775,015 | |||||||||||||||
Scott A. Estes |
||||||||||||||||||||
For Cause or Resignation without Good Reason | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Death or Disability | 1,597,583 | 0 | 4,166,959 | 0 | 5,764,542 | |||||||||||||||
Involuntary Termination without Cause or Resignation for Good Reason | 1,597,583 | 12,354 | 4,166,959 | 0 | 5,776,896 | |||||||||||||||
Involuntary Termination without Cause or Resignation following a Change in Corporate Control |
3,187,041 | 12,354 | 4,971,126 | 0 | 8,170,521 | |||||||||||||||
Non-Renewal of the Employment Agreement by the Company(2) | 0 | 0 | 4,166,959 | 0 | 4,166,959 | |||||||||||||||
Mercedes T. Kerr |
||||||||||||||||||||
For Cause or Resignation without Good Reason | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Death or Disability | 0 | 0 | 1,920,034 | 0 | 1,920,034 | |||||||||||||||
Involuntary Termination without Cause or Resignation for Good Reason | 826,876 | 10,668 | 1,920,034 | 0 | 2,757,578 | |||||||||||||||
Involuntary Termination without Cause or Resignation following a Change in Corporate Control |
1,522,982 | 10,668 | 2,511,701 | 0 | 4,045,351 | |||||||||||||||
Non-Renewal of the Employment Agreement by the Company(2) | 0 | 0 | 1,920,034 | 0 | 1,920,034 | |||||||||||||||
Scott M. Brinker(3) |
||||||||||||||||||||
For Cause or Resignation without Good Reason | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Death or Disability | 0 | 0 | 3,600,390 | 0 | 3,600,390 | |||||||||||||||
Involuntary Termination without Cause or Resignation for Good Reason | 1,449,561 | 13,254 | 3,600,390 | 0 | 5,063,205 | |||||||||||||||
Involuntary Termination without Cause or Resignation following a Change in Corporate Control |
2,891,751 | 13,254 | 4,890,404 | 0 | 7,795,409 | |||||||||||||||
Non-Renewal of the Employment Agreement by the Company(2) | 0 | 0 | 3,600,390 | 0 | 3,600,390 | |||||||||||||||
Jeffrey H. Miller(4) |
||||||||||||||||||||
For Cause or Resignation without Good Reason | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Death or Disability | 1,467,942 | 0 | 4,297,742 | 0 | 5,765,684 | |||||||||||||||
Involuntary Termination without Cause or Resignation for Good Reason | 1,467,942 | 12,354 | 4,297,742 | 0 | 5,778,038 | |||||||||||||||
Involuntary Termination without Cause or Resignation following a Change in Corporate Control |
2,928,417 | 12,354 | 4,588,400 | 0 | 7,529,171 | |||||||||||||||
Non-Renewal of the Employment Agreement by the Company(2) | 0 | 0 | 4,297,742 | 0 | 4,297,742 |
(1) | On January 3, 2017, the Company entered into a new employment agreement with Mr. DeRosa, which will become effective on April 13, 2017, after the expiration of his current employment agreement. For additional information regarding Mr. DeRosas new employment agreement, see Mr. DeRosas Amended and Restated Employment Agreement on page 37. |
(2) | The employment agreements of Mr. Estes, Mr. Brinker and Mr. Miller in effect as of December 31, 2016 do not expire until January 31, 2019 and Ms. Kerrs employment agreement does not expire until January 31, 2018. For purposes of this table, the amounts of compensation included in this row assume that the applicable employment agreement was terminated as of December 31, 2016 upon a non-renewal of such employment agreement by the Company. |
(3) | On January 3, 2017, Mr. Brinkers position as the Executive Vice President - Chief Investment Officer of the Company was eliminated. In connection with his departure, the Company and Mr. Brinker entered into a separation agreement. For additional information regarding Mr. Brinkers separation agreement, see Mr. Brinkers Separation Agreement on pages 57-58. |
(4) | On January 31, 2017, Mr. Miller retired as the Executive Vice President - Chief Operating Officer of the Company and his employment agreement was terminated as of that date. In connection with his retirement, the Company and Mr. Miller entered into a retirement agreement. For additional information regarding Mr. Millers retirement agreement, see Mr. Millers Retirement Agreement on page 58. |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 59 |
|
Executive Compensation (continued)
|
(5) | Cash Severance |
Under the employment agreements for Mr. DeRosa, Mr. Estes, Ms. Kerr, Mr. Brinker and Mr. Miller, as of December 31, 2016, these executives would be entitled to: (a) a lump sum severance payment equal to the present value of a series of monthly severance payments, calculated using a discount rate equal to the 90-day treasury rate; (b) in the case of Ms. Kerr and Mr. Brinker upon an involuntary termination without cause or a resignation for good reason, a series of monthly severance payments (rather than a lump sum); or (c) in the case of Mr. DeRosa upon an involuntary termination without cause or a resignation for good reason, a series of semi-monthly severance payments (rather than a lump sum). For Mr. DeRosa, the monthly payment used to calculate the lump sum is equal to 1/12 of the sum of his base salary plus the average annual bonus paid during the last three or, if applicable, fewer fiscal years, and the semi-monthly payment is 1/24 of the sum of his base salary plus the target annual cash bonus opportunity. For Mr. Estes and Mr. Miller, the monthly payment used to calculate the lump sum is equal to 1/12 of the sum of the executives base salary plus the greater of (a) the annual bonus paid during the last year or (b) a minimum bonus as a percent of base salary, as specified for each executive in his respective employment agreement. The annual bonuses paid during the last year have been in excess of the minimums specified in the agreement; thus the annual bonuses are used to calculate potential severance. For Ms. Kerr and Mr. Brinker, the monthly payment used to calculate the lump sum is equal to 1/12 of the sum of the executives base salary plus the average annual bonus paid during the last three years and the monthly payment is equal to 1/12 of the sum of his or her base salary plus the average annual bonus paid during the last three years.
For Mr. DeRosa, Mr. Estes, Ms. Kerr, Mr. Brinker and Mr. Miller, the severance calculation varies depending on the termination scenario:
| If the termination is for cause by the Company or without good reason by the executive, no severance would be paid. |
| For Mr. DeRosa, upon the involuntary termination without cause by the Company or voluntary termination by the executive for good reason, not related to a change in corporate control, the calculation will be based on semi-monthly payments for 24 months. For Ms. Kerr and Mr. Brinker, upon the involuntary termination without cause by the Company or voluntary termination by the executive for good reason, not related to a change in corporate control, and for Mr. Estes and Mr. Miller, upon the death of the executive or the involuntary termination without cause by the Company or voluntary termination by the executive for good reason, not related to a change in corporate control, the calculation will be based on the number of months remaining in the term of the agreement, but not less than 12 months for Mr. Estes, Ms. Kerr, Mr. Brinker and Mr. Miller. As of December 31, 2016, the remaining terms of each of the agreements of Mr. Estes, Mr. Brinker and Mr. Miller were 1 month. The remaining term for Ms. Kerr was 13 months. Therefore, the figures in the above table assume the lump sum (or in the case of Mr. Brinker and Ms. Kerr, the series of monthly payments) will be based on monthly payments for 12 months for Mr. Estes, Mr. Brinker and Mr. Miller, and 13 months for Ms. Kerr. |
| For Mr. DeRosa, upon involuntary termination without cause by the Company or voluntary termination by the executive for good reason within 24 months after a change in corporate control, the lump sum will be based on monthly payments for 36 months. For Mr. Estes and Mr. Miller, upon involuntary termination without cause by the Company or voluntary termination by the executive for any reason within 12 months of a change in corporate control, the lump sum will be based on monthly payments for 24 months. For Ms. Kerr and Mr. Brinker, upon involuntary termination without cause by the Company or voluntary termination by the executive for good reason within 24 months of a change in corporate control, the lump sum will be based on monthly payments for 24 months. |
The amounts reflected in the table above represent the discounted present value of the monthly payments assuming a 0.51% annual discount rate (the 90-day treasury rate as of December 31, 2016, the assumed date of termination).
Upon disability, as of December 31, 2016, Mr. Estes and Mr. Miller would be entitled to cash severance payable in a series of monthly severance payments. For Mr. Estes and Mr. Miller, each monthly payment is equal to 1/12 of the sum of the executives base salary plus the greater of (a) the annual bonus paid during the last year or (b) a minimum bonus as a percent of base salary, as specified for each executive in the employment agreement. Payments would be made for each month during the remaining term of the agreement, but not for less than 12 months for Mr. Estes and Mr. Miller. Based on the remaining terms of their agreements, the figures in the above table assume payments would be provided for 12 months for Mr. Estes and Mr. Miller.
(6) | Continued Benefits |
Under the employment agreement for Mr. DeRosa, as of December 31, 2016, Mr. DeRosa would be entitled to continued coverage at the Companys expense under any group health plan in which he participated at the time of involuntary termination without cause by the Company or voluntary termination by him for good reason for the period during which he elects to receive continuation coverage under Section 4980B of the Code at an after-tax cost comparable to the cost that Mr. DeRosa would have incurred for the same coverage had he remained employed during such period. The monthly cost of such benefits is estimated to be the current 2016 monthly costs. The same benefits would apply for Mr. DeRosa upon involuntary termination without cause by the Company or voluntary termination by the executive for good reason within 24 months of a change in corporate control.
Under the employment agreements for Mr. Estes, Ms. Kerr, Mr. Brinker and Mr. Miller, as of December 31, 2016, these executives would be entitled to continued coverage at the Companys expense under life, health and disability insurance programs in which the executive participated at the time of involuntary termination without cause by the Company or voluntary termination by the executive for good reason, for the remaining term of the agreement, but not less than six months and for each executive not more than the period during which the executive would be entitled to continuation coverage under Section 4980B of the Code, if he or she elected such coverage and paid the applicable premiums. As of December 31, 2016, the remaining terms of each of the agreements of Mr. Estes, Mr. Brinker and Mr. Miller were 1 month. The remaining term for Ms. Kerr was 13 months. Therefore, the figures in the above table assume continued benefits would be provided for 6 months for Mr. Estes, Mr. Brinker and Mr. Miller and 13 months for Ms. Kerr. The monthly cost of such benefits is estimated to be the current 2016 monthly costs. The same benefits would apply for Mr. Brinker and Ms. Kerr, upon involuntary termination without cause by the Company or voluntary termination by the executive for good reason within 24 months of a change in corporate control, and for Mr. Estes and Mr. Miller, upon involuntary termination without cause by the Company or voluntary termination by the executive for any reason within 12 months of a change in corporate control.
(7) | Accelerated Vesting of Unvested Equity Compensation |
Under the employment agreements for Mr. DeRosa, Mr. Estes, Ms. Kerr, Mr. Brinker and Mr. Miller, as of December 31, 2016, upon involuntary termination without cause by the Company, voluntary termination for good reason by the executive or the death of the executive, or, in the case of Mr. DeRosa, Ms. Kerr and Mr. Brinker, upon disability, all unvested stock and option awards would become fully vested. The numbers in this column represent the in-the-money value of unvested stock options and the full value of unvested restricted stock awards as of December 31, 2016 (the assumed termination date) where vesting would be accelerated upon termination under these scenarios.
For performance awards granted under the 2015-2017 Long-Term Incentive Program, in the event that Mr. DeRosa, Mr. Estes, Mr. Brinker or Mr. Miller terminates his employment for good reason or is terminated without cause by the Company, or upon the non-renewal of his employment agreement by the Company, if applicable, or his death, disability or retirement, the Compensation Committee will determine corporate performance relative to the performance targets as of the end of the calendar quarter immediately preceding the termination and such executive would receive a pro rata portion of the performance awards based on the number of months that he was employed by the Company in the performance period. As of December 31, 2016, two-thirds of the performance period had been completed, so if such a termination occurred on December 31, 2016 and the Compensation Committee determined that an award
60 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Executive Compensation (continued)
|
|
was earned, Mr. DeRosa, Mr. Estes, Mr. Brinker and Mr. Miller would receive two-thirds of the earned award. In the event of a change in corporate control, the Compensation Committee will evaluate corporate performance relative to the performance targets as of the day prior to the change in corporate control to determine any award earned by each executive at the time of the change in corporate control. The calculations included in this table for the performance awards are based on threshold achievement of the performance metrics during the completed portion of the performance period. Note that these amounts are different than the Companys compensation expense for granting these awards and no portion of the awards will be deemed earned until after the Compensation Committee makes such a determination (either after completion of the performance period or in connection with an executives termination or a change in corporate control). The assumed share price upon each termination scenario is $66.93, which was the closing price as of December 30, 2016, the last trading day of 2016.
For performance awards granted under the 2016-2018 Long-Term Incentive Program, in the event that Mr. DeRosa, Mr. Estes, Ms. Kerr, Mr. Brinker or Mr. Miller terminates his or her employment for good reason or is terminated without cause by the Company, or upon the non-renewal of his or her employment agreement by the Company, if applicable, or his or her death, disability or retirement, the Compensation Committee will determine corporate performance relative to the performance targets as of the end of the calendar quarter immediately preceding the termination and such executive would receive a pro rata portion of the performance awards based on the number of months that he or she was employed by the Company in the performance period. As of December 31, 2016, one-third of the performance period had been completed, so if such a termination occurred on December 31, 2016 and the Compensation Committee determined that an award was earned, Mr. DeRosa, Mr. Estes, Ms. Kerr, Mr. Brinker and Mr. Miller would receive one-third of the earned award. In the event of a change in corporate control, the Compensation Committee will evaluate corporate performance relative to the performance targets as of the day prior to the change in corporate control to determine any award earned by each executive at the time of the change in corporate control. The calculations included in this table for the performance awards are based on threshold achievement of the performance metrics during the completed portion of the performance period. Note that these amounts are different than the Companys compensation expense for granting these awards and no portion of the awards will be deemed earned until after the Compensation Committee makes such a determination (either after completion of the performance period or in connection with an executives termination or a change in corporate control). The assumed share price upon each termination scenario is $66.93, which was the closing price as of December 30, 2016, the last trading day of 2016.
For the performance-based restricted stock units granted to Mr. DeRosa pursuant to a performance-based restricted stock unit grant agreement, in the event that Mr. DeRosa terminates his employment for good reason or is terminated without cause by the Company or upon his death or disability, any outstanding performance-based restricted stock units would become fully vested. The assumed share price upon each termination scenario is $66.93, which was the closing price as of December 30, 2016, the last trading day of 2016.
(8) | Excise Tax Gross-Up |
Under the employment agreements for Mr. Estes and Mr. Miller, as of December 31, 2016, if any payments constitute excess parachute payments under Section 280G of the Code such that the executive incurs an excise tax under Section 4999 of the Code, the Company would provide an excise tax gross-up payment in an amount such that after payment of the excise tax and all income and excise taxes applicable to the gross-up payment, the executive would receive the same amount of severance had the excise tax not applied. Mr. DeRosa, Ms. Kerr and Mr. Brinker are not entitled to any excise tax gross-up payments under their employment agreements.
If a change in corporate control had occurred on December 31, 2016 and each of the Named Executive Officers was terminated as a result, none of these Named Executive Officers would have been subject to excise tax. In arriving at this conclusion, the following assumptions were used:
| Each officers base amount was calculated by taking the average W-2 income (box 1) from the past five years (2011-2015). |
| The stock award parachute calculations for purposes of Code Section 280G were based on Black-Scholes valuation methodology using the most recent GAAP ASC Topic 718 option valuation assumptions (volatility of 25.85%, risk-free interest rate of 1.78%, dividend yield of 5.2%, and expected remaining term of 4.4 years). Under the Code Section 280G rules, the cost included in the parachute for the accelerated vesting of stock options, restricted shares and unvested dividend equivalent rights is the sum of (1) the excess of the aggregate accelerated benefit over the present value of the accelerated benefit and (2) the lapse of service obligation (1% times the number of months of vesting accelerated times the aggregate accelerated benefit). |
| The total parachute for each Named Executive Officer did not exceed the Code Section 280G safe harbor, which is three times the base amount minus $1. As a result, these Named Executive Officers would not have incurred any excise tax. |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 61 |
|
Executive Compensation (continued)
|
Risk Management and Compensation
As described above in Executive CompensationCompensation Discussion and Analysis, the Companys compensation programs are designed, among other things, to encourage long-term shareholder value creation, rather than short-term shareholder value maximization. Performance is evaluated based on quantitative and qualitative factors and there is a review of not only what is achieved, but also how it is achieved. Consistent with this long-term focus, the compensation policies and practices for the NEOs and other employees do not encourage excessive risk-taking. In fact, many elements of the executive compensation program serve to mitigate excessive risk-taking.
| Balanced pay mix. A balanced mix of base salary, annual cash incentives and long-term equity compensation is provided. Incentives tied to annual performance are balanced with incentives tied to multi-year performance, as measured by total shareholder return on an absolute basis and relative to two indices in the long-term incentive programs. In this way, the executive officers are motivated to consider the impact of decisions over the short, intermediate and long terms. |
| Balanced performance measurements. The performance measures used in the annual and long-term incentive programs were chosen to provide appropriate safeguards against maximization of a single performance goal at the expense of the overall health of the Companys business. The incentive programs are not completely quantitative. Various individual and qualitative objectives are incorporated, and the Compensation Committee has the discretion to adjust earned bonuses based on the quality of the results as well as individual performance and behaviors. |
| Incentive payments are capped. The annual and long-term incentive programs do not have unlimited upside potential. |
| Long-term incentive grants. Restricted shares, which are well-aligned with shareholders because they have both upside potential and downside risk, make up 100% of the total value of the long-term incentive compensation program. |
| Clawback Policy. As discussed in Corporate GovernanceClawback Policy, the executive officers and certain other covered officers are subject to a clawback policy, which allows the Company to recover incentive compensation (including stock options, restricted stock and restricted stock units) received by such officers in the event the Company is required to prepare a financial restatement due to the Companys material non-compliance with any financial reporting requirement. |
| Stock ownership requirements. As discussed in Executive CompensationCompensation Discussion and AnalysisOwnership Guidelines the executive officers are subject to stock ownership guidelines based on a multiple of base salary. These stock ownership guidelines align the interests of management with long-term shareholder interests. |
To confirm the effectiveness of its approach to compensation, from time to time the Company reviews the potential risks associated with the structure and design of its various compensation plans and programs for all employees. In conducting this assessment, the Company inventories its material plans and programs, with particular emphasis on incentive compensation plans.
62 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
Equity Compensation Plan Information
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The following table sets forth certain information, as of December 31, 2016, concerning shares of common stock authorized for issuance under all of the Companys equity compensation plans:
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(a) Number of Securities to |
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(b) Weighted Average |
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(c) Number of Securities Remaining Available (Excluding Securities |
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Equity compensation plans approved by shareholders | 735,940 | (1) | $51.19 | (2) | 11,780,478 | (3) | ||||||||||
Equity compensation plans not approved by shareholders | None | N/A | None | |||||||||||||
Totals | 735,940 | (1) | $51.19 | (2) | 11,780,478 | (3) |
(1) | This number reflects the options, restricted stock units and deferred stock units granted under the 2005 Long-Term Incentive Plan and the 2016 Long-Term Incentive Plan. See notes 5, 9, 10 and 11 to the 2016 Outstanding Equity Awards at Fiscal Year-End Table and note 5 to 2016 Director Compensation Table for additional information regarding the restricted stock units and deferred stock units. |
(2) | This price does not include restricted stock units or deferred stock units granted under the 2005 Long-Term Incentive Plan or the 2016 Long-Term Incentive Plan. |
(3) | This number reflects the 10,000,000 shares of common stock reserved for future issuance under the 2016 Long-Term Incentive Plan, as reduced by awards issued under the 2016 Long-Term Incentive Plan, and as increased by shares granted under the 2005 Long-Term Incentive Plan or the 2016 Long-Term Incentive Plan that were forfeited, cancelled, surrendered or terminated unexercised and are available for future issuance under the 2016 Long-Term Incentive Plan. |
Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 63 |
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Management is not aware of any matters to be presented for action at the Annual Meeting other than the matters set forth above. If any other matters do properly come before the meeting or any adjournment thereof, it is intended that the persons named in the proxy will vote in accordance with their judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
Matthew McQueen
Senior Vice President - General Counsel & Corporate Secretary
64 | Notice of Annual Meeting of Shareholders and 2017 Proxy Statement |
www.welltower.com
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
E21537-P87991 | KEEP THIS PORTION FOR YOUR RECORDS |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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DETACH AND RETURN THIS PORTION ONLY
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WELLTOWER INC.
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. |
V.1.1
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice of Annual Meeting of Shareholders and Proxy Statement and Annual Report are available at
www.proxyvote.com.
E21538-P87991
WELLTOWER INC.
Annual Meeting of Shareholders
May 4, 2017 9:00 A.M.
This proxy is solicited by the Board of Directors
The undersigned hereby appoint(s) Matthew G. McQueen and Scott A. Estes, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them, or either of them, to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of WELLTOWER INC. that the undersigned is/are entitled to vote at the Annual Meeting of Shareholders to be held at 9:00 A.M. Eastern Time on Thursday, May 4, 2017, in the Bruce G. Thompson Auditorium at Welltower Inc.s corporate headquarters, 4500 Dorr Street, Toledo, OH 43615, and any adjournment or postponement thereof.
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors recommendations. This proxy will be voted in the discretion of the proxies on any other business that may properly come before the meeting or any adjournment or postponement thereof.
Continued and to be marked, dated and signed on reverse side
V.1.1