Douglas Emmett Inc. addressed concerns of Institutional Shareholder Services Inc. regarding its CEO's compensation in 2018 and urged its stockholders to vote in favor of the reelection of the members of its governance committee, contrary to a recommendation by the proxy advisory firm.
The office and multifamily real estate investment trust noted that its stockholders rejected ISS' recommendation in 2017 that they vote against the reelection of the governance committee members. The REIT said ISS objects to any requirement that a proposal have at least minimal stockholder backing before wasting the time and expense of a stockholder vote.
The REIT added that to justify its changed recommendation, the proxy advisory firm mostly cites items that have not changed for several years, including the fact that its CEO compensation continues to be based on a qualitative analysis of performance, and that ISS acknowledged that the REIT's compensation committee has properly exercised a discretion to align pay with performance over many years.
"Mechanical formulas may simplify ISS's own analysis, but they can be manipulated, have unintended consequences and actually increase misalignment," the REIT said.
ISS also questioned the REIT's COO compensation, which is the same as that of the CEO, but Douglas Emmett said this has not led to excessive general and administrative expenses. The company noted that its 2018 G&A expenses were only 4.4% of revenues, lower than 20 of its 21 peers selected by ISS and the company, and much less than the 7.8% average for its fellow office REITs.
ISS also questioned a car allowance, which the REIT said has been in place for decades, noting that the CEO received only 0.03% of his compensation from all perquisites in 2018.
The REIT further argued that ISS particularly acknowledged that Douglas Emmett's financial metrics improved in 2018 and that its CEO pay during that year was not increased from 2017, effectively resulting in a relative decrease in compensation, compared to the estimated 5% increase in CEO pay for its benchmark group.