This excerpt taken from the FR DEF 14A filed Apr 10, 2006.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is composed of two of the Companys independent directors, Messrs. Slater and Tyler. The Compensation Committee has overall responsibility for evaluating and approving the compensation plans, policies and programs relating to the executive officers of the Company.
Objectives of Executive Compensation. The Company maintains the philosophy that compensation of its executive officers and other employees should serve the best interests of the Companys stockholders. Accordingly, the Compensation Committee has designed its compensation policy to provide management proper incentives, directly and materially linked to operating performance, to maximize the Companys overall performance. Consistent with this, executive compensation is weighted towards bonuses and incentive awards (e.g. restricted stock awards, stock option grants and deferred income awards) paid or granted on the basis of the Companys and each executives performance. Thus, while annual salary increases are based on personal performance of the executive officers and general economic conditions, annual bonuses and incentive awards are directly tied to the Companys actual economic performance during the applicable fiscal year.
With respect to performance in 2003, 2004 and 2005, the Compensation Committee determined to utilize restricted stock awards exclusively as the Companys incentive award. Currently, the Compensation Committee anticipates that it will continue in the future to utilize restricted stock awards exclusively as the Companys incentive award; however, it reserves the right to utilize other incentive awards in the future if and when it determines such incentive awards would be appropriate.
Restricted stock is granted to the executives under the provisions of the 1997 Stock Plan and the 2001 Stock Plan. The Compensation Committee determines those executives who will receive restricted stock and, if utilized in the future, other incentive awards and the terms of such awards.
2005 Bonus and Incentive Compensation/CEO Compensation. The bonuses and incentive awards awarded for 2005 performance to each of the Chief Executive Officer and the other executive officers of the Company were based on the Companys internal plan targets for 2005, including the Companys (i) stock price, including total return, (ii) earnings per share, (iii) funds from operations, (iv) net asset value, (v) return on assets, (vi) portfolio performance, including same store net operating income, tenant retention, occupancy and capital expenditures, (vii) general and administrative expense, (viii) investment/divestment activity, (ix) capital markets activity, and (x) certain balance sheet objectives, including leverage and pay-out ratios. Generally, bonuses and incentive awards for 2005, including those for the Chief Executive Officer, were higher as a percentage of annual salary than in 2004, due to the Companys performance in 2005 relative to certain of its internal plan targets in an improving economic environment. The 2005 annual salary for Mr. Brennan, Chief Executive Officer of the Company, was set prior to the beginning of such year and reflects general economic conditions prevailing at the time.
Compensation Committee Procedures. The Compensation Committee annually evaluates the Companys performance, as well as the personal performance of the Chief Executive Officer and the other executive officers of the Company. Company performance is evaluated by quantitative factors based on the Companys internal plan targets for the applicable year. Personal performance is evaluated both by qualitative factors, including organizational and management development exhibited from year to year, and by quantitative factors based on the Companys internal plan targets for the applicable year. Generally, the Compensation Committee will meet prior to the beginning of each fiscal year to establish base salary and performance targets for the upcoming year and will meet again at the beginning of each year to review performance and approve incentive awards for the preceding fiscal year.
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the deductibility on public corporations federal tax returns of compensation over $1 million to certain executive officers. The Company does not believe that Section 162(m) of the Internal Revenue Code is applicable to its current arrangements with its executive officers. Accordingly, the Compensation Committee does not currently factor Section 162(m) deductibility limitations into its compensation decisions.
The Compensation Committee believes that it has designed and implemented a compensation structure that provides appropriate awards and incentives for the Companys executive officers as they work to sustain and improve the Companys overall performance.
Submitted by the Compensation Committee:
Robert J. Slater, Chairman
W. Ed Tyler