REITs’ CEO-employee pay gap varies greatly
Some REITs outsource lowest-paying jobs, while others keep them, widening pay ratios
The compensation paid to the chief executive of Park Hotels & Resorts Inc. in 2017 was 567 times greater than the wages of its median workers, the widest such disparity among the top 100 real-estate investment trusts, according to FPL Associates LP, a compensation consultancy focused on the realestate industry.
Park Hotels said in company filings that its median employee was paid $21,082, while its CEO, Thomas J. Baltimore Jr., earned $11.95 million last year.
On average, the ratio between the CEO and median employee of a REIT last year was 57 to 1, according to an FPL study. Among the top 100 REITs, the average ratio was 77 to 1. In comparison, the median pay ratio across the Russell 3000 was 70 to 1.
REITs, alongside other firms in the U.S., revealed for the first time during the recent proxy season how much the median worker earns and how that compares with the CEO because of a provision in the 2010 Dodd-Frank Act. It was designed partly to help shareholders better understand and challenge compensation practices at major companies.
In the REIT industry the ratio varied greatly, but that was largely because some companies outsource the lowestpaying jobs like custodians and parking-lot attendants, while others keep them on staff.
The self-storage and multifamily REITs have ratios at 132 to 1 and 129 to 1, respectively. Other sectors such as hotel and industrial landlords have shown lower CEO pay ratios at 35 to 1 and 53 to 1, respectively, in part because they have outsourced many of the lower- wage property operations jobs to other property-management firms, according to the FPL study.
“These ratios have widely been viewed skeptically as they don’t really tell the entire story,” said Jeremy Banoff, senior managing director at FPL.
Park Hotels, based in Tysons, Va., owns a portfolio of 50 U.S. properties such as the New York Hilton Midtown, as well as four hotels abroad.
It also had the highest ratio partly because Mr. Baltimore’s pay included a one-time award of $4.37 million related to the company’s spinoff from Hilton Worldwide Holdings Inc. in early 2017, according to filings.
Park Hotels’ filings said that it selected the median employee based on its 2,671 full-time and part-time, temporary and seasonal workers, and this includes employees at seven properties that it self-operates, as well as employees abroad. Of these, 3 per cent are full-time corporate employees, and if it were to consider only these 84 workers, the resulting CEO pay ratio would be lowered to 64 to 1, the company said.
“At our lodging REIT peers, these same type of employees are typically employed by thirdparty hotel-management companies” and therefore not included in pay ratios, said Tom Morey, executive vice president and general counsel of Park Hotels.
Mr. Morey said that the 64 to 1 ratio is a more useful “applesto-apples” comparison to its lodging REIT peers. He added that investors have “expressed minimal interest” in this issue.
The REIT with the highest median employee pay was Terreno Realty Corp., an industrial REIT based in San Francisco, which paid its median employee $317,625 in 2017. This was partly because it counted the pay of only 22 employees, and it hires mainly local third-party property managers, which weren’t included in this ratio, to run the operations of its warehouses and distribution facilities, according to disclosures from the company’s filings.
Terreno’s CEO was paid $1.57 million in 2017, resulting in a CEO pay ratio of 5 to 1. Terreno didn’t respond to requests for comment.
REIT investors during the recent proxy season continued to have some gripes about compensation. Overall, there has been a slight dip in shareholder support for REITs’ compensation plans, with the average vote supporting these pay plans coming in at 89.7 per cent compared to 91.4 per cent last year, according to FPL. Four REITs — Whitestone REIT, Hospitality Properties Trust, iStar Inc. and Tanger Factory Outlet Centers Inc. — failed to get more than 50 per cent shareholder support on so-called say-on-pay proposals, where public companies put their compensation practices to a nonbinding shareholder vote.
iStar said its executive compensation was driven by performance-based incentives and that the board “has taken into account the concerns expressed by investors and plans to modify the compensation program design as well as enhance the transparency of the program to better clarify its performance-based structure.” The other three REITs didn’t respond to requests for comment. Also last year, the betterperforming real-estate classes saw a higher degree of pay increases. CEO pay increased around 21 per cent among industrial REITs, whose total shareholder returns averaged 18.7 per cent, said FPL.
But for the second year in a row, senior-management teams at the country’s largest mall owners took a cut to their compensation amid continued store closures as the retail industry continues to struggle with increasing competition from e-commerce and excess supply of space.
Mr. Banoff predicted that the compensation disparity issue might resonate more in future years. If pay ratios continue to be disclosed, shareholders and employees might scrutinize how much these CEO-to-median employee ratios change compared with changes in the CEO pay. “If the CEO pay goes up at a faster clip than the median employee’s pay, you might get questions,” said Mr. Banoff.