This excerpt taken from the O DEF 14A filed Mar 23, 2007.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis section discusses the compensation policies and programs for our executive officers, including our Named Executive Officers, as such term is defined in the Summary Compensation Table below. The Compensation Committee administers the compensation policies and programs for our executive officers and regularly reviews and approves our executive compensation strategy and principles to ensure that they are aligned with our business strategy and objectives, encourage high performance, promote accountability and assure that managements interests are aligned with the interests of our stockholders.
Compensation Committee Membership. The Compensation Committee is comprised entirely of independent directors who satisfy the independence requirements of the New York Stock Exchange, are non-employee directors within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the 1934 Act), and are outside directors under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code).
Overview of Compensation Philosophy and Program. The Compensation Committee believes that compensation should reflect the value created for our stockholders while supporting our business strategies and long-range plans and the markets we serve, and that such compensation should assist us in attracting and retaining key executives critical to our long-term success. In doing so, our compensation programs reflect the following themes:
A compensation program that stresses our financial performance and the individual performance of each executive officer;
A compensation program that strengthens the relationship between pay and performance by providing compensation that is reflective of current market practices and comparable executive rates and is dependent upon the level of success in meeting specified company and individual performance goals;
A compensation program that seeks to align the financial interests of the executive officers with those of our stockholders;
A compensation program that is reasonable, performance-based, and consistent with our overall compensation objectives designed to retain key members of management;
An annual incentive plan that supports a performance-oriented environment and which generates a portion of compensation based on the achievement of performance goals; and
A long-term incentive plan that is designed to reward executive officers for our long-term strategic management and the enhancement of stockholder value.
To achieve our goals, the Compensation Committee offers our chief executive officer and other executive officers a compensation package that is mainly comprised of the following compensation elements: (1) a base salary, designed to be competitive with salary levels in our industry and to reflect individual performance; (2) an annual incentive bonus payable in cash and tied to our achievement of annual financial and other performance goals, which supports our annual performance; (3) long-term stock-based incentive awards, which support our long term performance and are designed to strengthen the mutuality of interests between our executive officers and our stockholders; and (4) severance payments and other benefits payable upon termination of an officers employment by us without cause or subsequent to a change of control of us, which promote executive retention and efforts toward the best interests of the stockholders in the event of an actual or threatened change of control of us. We believe that each of these elements and their combination is necessary to support our overall compensation objectives.
Compensation Consultant and Peer Comparisons. To assist in its efforts to meet the objectives outlined above, the Compensation Committee has retained FPL Associates Compensation, a division of FPL Associates, LP, a nationally known executive compensation and benefits consulting firm to advise it on a regular basis on the amount and form of our executive compensation and benefit programs. The Compensation Committee engaged the consultant to provide general executive compensation consulting services and to respond to any Compensation Committee members questions and to managements need for advice and counsel. In addition, the consultant performs special executive compensation projects and consulting services from time to time as directed by the Compensation Committee. In 2006, such services included providing data regarding market practices and making recommendations for changes to our plan designs and policies consistent with our compensation philosophies and objectives, and advising on executive base salaries, bonuses and long-term incentive compensation. In 2006, the consultant also assisted the Compensation Committee in designing and reviewing tally sheets regarding total compensation of our executive officers and provided studies and recommendations regarding the compensation of our peer group. The consultant reports to the chairman of the Compensation Committee and the Compensation Committee retains the right to terminate or replace the consultant at any time. Pursuant to the Compensation Committees charter, the Compensation Committee has the power to engage such consultants and other advisors.
In determining compensation for our executive officers, the Compensation Committee annually surveys each company in our peer group and examines each peer companys performance (including total return and funds from operations growth) and the compensation elements and levels provided to their executive officers. The Compensation Committee then evaluates our performance and generally determines whether the compensation elements and levels that we provide to our executive officers are appropriate relative to the compensation elements and levels provided to their counterparts at our peer companies, in light of our executive officers individual contribution to our performance. If appropriate, the Compensation Committee will adjust compensation paid to our executive officers. In addition to reviewing executive officers compensation against the peer companies, the Compensation Committee also solicits appropriate input from our chief executive officer and our president, chief operating officer, regarding total compensation for each of our executive officers. The Compensation Committee believes that the compensation paid to each of our executive officers is generally in line with the compensation paid to executive officers of our peer group companies.
The Compensation Committee, with the help of the consultant, periodically reviews the composition of the peer group and the criteria and data used in compiling the peer group list, and considers modifications to this group. Throughout 2006, the Compensation Committee reviewed data provided by the consultant regarding the appropriate companies to include in the peer group and the effects any change in the peer group would have on our standing within the peer group. For 2006, the peer group used by the Compensation Committee included the following companies: National Retail Properties, Entertainment Properties Trust, Getty Realty Corporation, Lexington Corporate Properties Trust, Spirit Finance Corporation and Truststreet Properties, Inc., each of which invests in similar assets as we do. In addition, our peer group included 12 companies that are of a similar size as we are and 13 companies that are located in California.
Performance Benchmarks. The Compensation Committee also sets performance benchmarks for assessing the performance of each executive officer and evaluates such performance benchmarks in determining the annual cash bonus and equity awards. The general methodologies for assessing such performance include the following:
Shareholder returns, including absolute returns and comparative returns versus other REITs and other stock indexes and a subjective analysis of the relative risk taken by peer companies;
Company operations, including revenue, expense control, funds from operations performance, access to capital, debt levels, vacancy levels and resolution, credit quality, acquisition levels, yields and internal rates of return, asset diversification, employee turnover, trading multiples, dividend yields and increases, executive peer evaluations and new initiatives suggested and implemented; and
Industry compensation levels, including what peer companies are paying for comparable positions, other alternatives for the executive officer, how valuable is the executive officer, future prospects for the executive officer, how difficult it would be to replace the executive officer and how the executive officer performed versus other years.
In addition to the foregoing general methodologies for assessing performance, the Compensation Committee reviews specific benchmarks for the executive officers based upon their position within the company and then uses this information in assessing the level of compensation to provide to each executive officer.