Aimco Shareholders Will Vote
On Bonus Program for Managers
Apartment Investment & Management Co. not only wants to outdo its peers, it wants to outdo itself.
Next Tuesday, Aimco shareholders are expected to vote on raising the bar on the company's investment program for senior and middle managers. Under the modified High Performance Unit investment program, the Denver-based real-estate investment trust will have to return at least 11% a year to investors for three years, up from 9% under the original program, for managers to benefit.
Aimco is a pioneer -- its first three-year investment program began in 1998 -- in a move among REITs toward such extra-bonus plans, which are supplements to existing pay plans. Compensation consultants call these programs superbonus plans.
"These are plans that when a company performs above and beyond the norm, there's an opportunity to get a greater share of the value created," says Michael Herzberg, chief executive of FPL Associates, a financial, compensation and management consulting firm based in Chicago. "That is the newest name in the game."
More and more REITs are considering superbonus plans, Mr. Herzberg says. Shurgard Storage Centers Inc., Seattle, for example, adopted a long-term bonus plan in 1999 called Vision 2003. The plan promises a range of employees a $50 million, one-time bonus if the company posts funds from operations of $1.25 a share or more in any quarter in 2003. Funds from operations is a commonly used measure of REITs' financial performance.
While unusual in the REIT industry, superbonus plans are used in corporate America, says Yale D. Tauber, a principal at consulting firm William M. Mercer Inc. "Each year, companies have been increasing the leverage of their executive pay packages as well as the emphasis on performance over long-term periods," he says.
Aimco is aiming to pull off its program amid a weaker economy. Earlier this year, in fact, the apartment owner cited the slowing economy as one reason why it might not meet analysts' 2001 consensus earnings estimates.
Aimco's move comes as stocks of apartment REITs are starved for investor affection. Total returns for apartment REITs fell 2.8% year-to-date as of Thursday, according to Morgan Stanley, with Aimco down 7.4%.
Aimco says the modified program is intended to retain talent and create shareholder value. In addition to raising target return levels, the plan would increase the number of employees who can participate. Aimco says it amended the program based on input from its shareholders.
In the latest three-year period, Aimco's total return rose 59%, exceeding the program's minimum goal of 30% (or 9.1% compounded annually) and the Morgan Stanley REIT index's rise of 0.58% for the same period. The company says the excess shareholder value created -- or the 29% above the minimum return Aimco posted multiplied by $2.6 billion, the company's average market capitalization -- totaled $767 million, The value of the high performance units totaled 15% of that, or $115 million.
Not only will Aimco have to meet its total-return goal, it will have to outperform the Morgan Stanley REIT index by 15%. "If we come in greater than 11% but less than the index, then we lose our investment," says Paul J. McAuliffe, chief financial officer. "If we come in higher than the index but lower than 11%, we lose our investment."
Aimco managers can invest anywhere from $10,000 to about $2 million of their own money in the plan. If the company meets the targets, managers get units, a special class of partnership interests that have the same economic features of common stock.
Mr. McAuliffe says the units align senior management's long-term goals with those of shareholders. "Each [high performance unit] cannot be sold and is not transferable," he says. "It represents a lifetime commitment. If someone leaves, they can't liquidate. As a result, the behavior of management is consistent with shareholder value."
Email your comments to rjeditor@dowjones.com.