Property Execs Disagree
On 'Pay for Performance'
NEW YORK (March 7, 2003) -- It's proxy season -- the time of year when Wall Street learns just how well company executives were compensated over the past year.
It seems, however, that real-estate moguls have different opinions on how much their pay should reflect their company's performance and stock price.
During a Morgan Stanley real-estate conference in New York recently, some executives appeared at opposite ends of the spectrum when it came to tying compensation to performance.
Most executives agreed that the real-estate world -- with the exception of shopping-mall owners -- has been struggling with falling rents and occupancies over the past year, and stock prices -- especially in the office and apartment sectors -- have taken a beating. But linking executive salaries directly to performance isn't the norm.
"We pay for performance," said Terry Considine, chairman and chief executive of Apartment Investment & Management Co. "I cut my pay in half."
"It was a difficult time and the price was down, and I worked very hard," he said. But at the end of the day, he believes management's salaries should reflect performance.
However, Steven Roth, chairman and chief executive of Vornado Realty Trust, doesn't share this view.
"It's a very complicated question," he said. "We have four or five really talented enterpreneurial-type" executives who might leave for greener pastures if compensation was cut, he said. He speculates some might flee to funds where pay packages would remain fat, and losing those executives, he argues, would hurt Vornado's longer-term performance.
"It's important to business that we are able to retain them," Mr. Roth said. "Some of these real-estate opportunity [fund] guys are... like rock stars."
Mr. Roth's stance isn't new. In 2002, Vornado came under investor fire and analysts lowered earnings estimates after discovering in regulatory filings that Vornado had awarded a hefty compensation package to its president, Michael Fascitelli. Under the pay package, Mr. Fascitelli was awarded 626,566 shares -- then valued at about $27.5 million -- all of which he vested at the end of 2002. The package forced the company to boost its general, selling and administrative costs for the year, thereby lowering FFO (funds from operations) numbers. The compensation was in addition to Mr. Fascitelli's base salary and bonus.
At the time, market experts speculated that Mr. Fascitelli was being compensated for the lofty salary he would have earned had he not left his high-flying post at Goldman Sachs Group Inc. in 1996 to join Vornado.
Vornado often operates similarly to a private company in that it tends to keep its business plans and finances close to the vest: Its press releases on quarterly earnings are bare-boned with little detail, and management never holds conference calls with investors, analysts and the press to discuss quarterly results as most other real-estate investment trusts do. The policy sparked considerable criticism in the third quarter when the company's funds from operations missed analysts' expectations by 8 cents a share.
Mr. Roth declined to comment on whether his company would consider hosting conference calls.
While Messrs. Considine and Roth appeared at opposite ends on the compensation issue, some took the middle road.
David Simon, chief executive of Simon Property Group Inc., said he believes REIT executives, in general, are "underpaid" when compared with other industries. Still, Simon, as a mall owner, hasn't faced the stock sell-off and tough times other real estate sectors have over the past year.
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