DEF 14A 1 a18-2989_1def14a.htm DEF 14A

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.          )

 

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Definitive Proxy Statement

 

 

 

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Soliciting Material under §240.14a-12

VENTAS, INC.

(Name of Registrant as Specified In Its Charter)

 

 

 

 

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353 North Clark Street

Suite 3300

Chicago, Illinois 60654

(877) 483-6827

 

April 2, 2018

 

Dear Ventas Stockholder:

 

Please join me and the Board of Directors at our 2018 Annual Meeting of Stockholders, which will be held on Tuesday, May 15, 2018, at our headquarters in Chicago, Illinois. The business we will conduct at the meeting is described in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.

 

ü         We worked hard in 2017 to continue our commitment to stakeholders and once again delivered superior performance through increasing normalized funds from operations to $4.16 per share, dividend per share growth of 5%, record $3.6 billion revenue and $2.1 billion net operating income, net cash provided by operating activities grew by 5%, up to a record level, value-creating investments, especially significant expansion of our university-based life sciences and innovation business, accelerated dispositions of greater than $900 million in assets at premium pricing, materially enhanced liquidity, capital markets excellence, collaboration with our operators to build or recapitalize their businesses and reinforcement of the strength and character of our team. Our long-term compound annual total stockholder return of 24% since January 1, 2000 is exceptional.

 

ü         The Ventas Advantage – superior properties, platforms and people – continues to drive our outperformance and secure our position as the premier capital provider to best-in-class operators and developers. We welcome the opportunity to present you with the information contained in this Proxy Statement and we hope that, after you review it, you will vote at the meeting (either in person or by proxy) in accordance with our Board of Directors’ recommendations. Your vote is important to us and our business.

 

If you are voting by proxy, please submit your proxy as soon as possible to ensure your vote is recorded at the Annual Meeting. You may vote by telephone, over the Internet or – if you have requested paper copies of our proxy materials by mail – by signing, dating and returning the proxy card in the envelope provided.

 

Our Board of Directors greatly appreciates your investment and continued support.

 

Sincerely,

 

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Debra A. Cafaro

Chairman of the Board and Chief Executive Officer

 



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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

Tuesday, May 15, 2018

8:00 a.m., Local (Central) Time

James C. Tyree Auditorium, 353 North Clark Street, Chicago, Illinois 60654

 

We are pleased to invite you to join our Board of Directors and senior management for Ventas, Inc.’s 2018 Annual Meeting of Stockholders. The Annual Meeting will be held at 8:00 a.m. local (Central) time on Tuesday, May 15, 2018, in the James C. Tyree Auditorium, located at 353 North Clark Street, Chicago, Illinois 60654. The purposes of the meeting are:

 

1.            

to elect the nine director nominees named in the Proxy Statement to serve until the 2019 Annual Meeting of Stockholders;

2.            

to ratify the selection of KPMG LLP as our independent registered public accounting firm for the 2018 fiscal year;

3.            

to hold an advisory vote to approve our executive compensation; and

4.            

to transact such other business as may properly come before the meeting or any adjournments or postponements of the meeting.

 

The Proxy Statement following this Notice describes these matters in detail. We have not received notice of any other proposals to be presented at the Annual Meeting.

 

Our Board of Directors established March 16, 2018 as the record date for the Annual Meeting. Accordingly, holders of record of shares of our common stock as of the close of business on that date are entitled to vote at the Annual Meeting and any postponements or adjournments of the meeting. We will make available to our stockholders, for ten days prior to the Annual Meeting, a list of stockholders entitled to vote. That list will be available for inspection during normal business hours at our principal executive offices located at 353 North Clark Street, Suite 3300, Chicago, Illinois 60654, and it will also be available at the Annual Meeting.

 

Please vote your shares promptly by telephone, over the Internet or – if you have requested paper copies of our proxy materials by mail – by signing, dating and returning the proxy card in the envelope provided. Voting your shares prior to the Annual Meeting will not prevent you from changing your vote in person if you choose to attend the meeting.

 

By Order of the Board of Directors,

 

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T. Richard Riney

Executive Vice President, Chief Administrative Officer,

General Counsel and Ethics and Compliance Officer

 

April 2, 2018

Chicago, Illinois

 



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TABLE OF CONTENTS

 

 

Page

PROXY SUMMARY

1

 

2017 Performance

1

 

2017 Executive Compensation

5

 

2018 Annual Meeting of Stockholders

9

 

Proposals Requiring Your Vote

10

 

Electronic Document Delivery to Stockholders

11

 

Questions and Answers

11

 

ANNUAL MEETING INFORMATION

12

 

Quorum

12

 

Who Can Vote

12

 

How to Vote

12

 

OUR BOARD OF DIRECTORS

13

 

Criteria for Board Membership

13

 

Annual Board Evaluation Process

14

 

Director Independence

14

 

Leadership Structure and Independent Presiding Director

15

 

Management Succession Planning

15

 

Committees

16

 

Board and Committee Meetings

16

 

How to Communicate with Directors

16

 

AUDIT AND COMPLIANCE COMMITTEE

17

 

EXECUTIVE COMMITTEE

17

 

EXECUTIVE COMPENSATION COMMITTEE

17

 

Compensation Committee Interlocks and Insider Participation

18

 

Independent Compensation Consultant

18

 

INVESTMENT COMMITTEE

19

 

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

19

 

CORPORATE GOVERNANCE

19

 

Governance Policies

19

 

Transactions with Related Persons

19

 

Risk Management

20

 

Public Policy Matters

21

 

OUR EXECUTIVE OFFICERS

22

 

EXECUTIVE COMPENSATION

24

 

Compensation Committee Report

24

 

Compensation Discussion and Analysis

24

 

Executive Summary

24

 

2017 Responsive Redesign of our Long-Term Equity Incentive Plan

30

 

Objectives of Our Compensation Program

31

 

Benchmarking and Comparable Companies

32

 

Compensation Mix

33

 

Elements of Our Compensation Program

34

 

2017 Forward-Looking Awards: Responsive Redesign of Long-Term Incentive Compensation

42

 

Other Benefits and Perquisites

48

 

Severance Benefits

49

 

Tax Considerations

49

 

Voluntary Adoption of Proxy Access

49

 

Minimum Share Ownership Guidelines for Executive Officers

49

 

Recoupment Policy

50

 

Anti-Hedging and Pledging Policy

50

 

Compensation Tables

51

 

 



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2017 Summary Compensation Table

51

 

2017 Grants of Plan-Based Awards Table

53

 

2017 Outstanding Equity Awards at Fiscal Year-End Table

55

 

2017 Options Exercised and Stock Vested Table

57

 

Employment and Severance Agreements with Named Executive Officers

57

 

Potential Payments Upon Termination or Change of Control

62

 

CEO PAY RATIO

65

 

NON-EMPLOYEE DIRECTOR COMPENSATION

65

 

Cash Compensation

65

 

Equity-Based Compensation

66

 

Review of Non-Employee Director Compensation

67

 

Minimum Share Ownership Guidelines for Non-Employee Directors

67

 

2017 Non-Employee Director Compensation Table

68

 

EQUITY COMPENSATION PLAN INFORMATION

69

 

SECURITIES OWNERSHIP

70

 

Directors, Director-Nominees and Executive Officers

70

 

Principal Stockholders

71

 

Section 16(a) Beneficial Ownership Reporting Compliance

72

 

PROPOSALS REQUIRING YOUR VOTE

72

 

Proposal 1: Election of Directors

72

 

Proposal 2: Ratification of the Selection of KPMG as Our Independent Registered Public Accounting Firm for Fiscal Year 2018

78

 

Proposal 3: Advisory Vote to Approve Our Executive Compensation

80

 

QUESTIONS AND ANSWERS; OTHER INFORMATION

84

 

Questions and Answers

84

 

Other Information

85

 

REQUIREMENTS FOR SUBMISSION OF STOCKHOLDER PROPOSALS, DIRECTOR NOMINATIONS AND OTHER BUSINESS

85

 

ADDITIONAL INFORMATION

86

 

ANNEX A: NON-GAAP FINANCIAL MEASURES RECONCILIATION

A-1

 

 



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PROXY STATEMENT

 

PROXY STATEMENT SUMMARY

 

We prepared the following summary to highlight important information you will find in this Proxy Statement regarding our 2017 performance and the matters to be considered at the 2018 Annual Meeting of Stockholders. As it is only a summary, please review our Annual Report on Form 10-K for the year ended December 31, 2017 (which we refer to as our “2017 Form 10-K”) and the other information contained in this Proxy Statement before you vote. This Proxy Statement and the materials accompanying it are first being sent to stockholders on or about April 2, 2018.

 

2017 Performance*

 

 

 

 

Financial and Operating Performance Highlights

 

In 2017, Ventas achieved record $3.6 billion revenue and $2.1 billion net operating income* (“NOI”) and same-store cash NOI growth of 2.5%, at the high end of our initial guidance, through proactive asset management, collaborative and mutually beneficial arrangements with our leading operators and profitable dispositions of lower-growth properties. Net cash provided by operating activities grew by 5%, up to a record level.

 

We further strengthened our financial condition by expanding our liquidity by $1.4 billion, at improved pricing, and maintained our robust fixed charge coverage ratio. We maintained a strong balance sheet with a 5.7x net debt to adjusted pro forma EBITDA* ratio and maintained our BBB+ credit rating.

 

Demonstrating our excellence in capital markets, we completed $4.5 billion in efficient long-term capital raises, including issuance of more than $1 billion in long-term debt at attractive rates, an upsized and extended revolving credit facility with $3 billion in borrowing capacity at improved pricing and a $400 million revolving construction credit facility to facilitate funding our broadening development pipeline.

 

We made and committed to investments of $1.8 billion to further improve the quality of our portfolio, creating, building out and diversifying valuable platforms, including: the continued growth in our university-based life sciences and innovation business with significant developments and acquisitions (grown by 37% since inception with a strong pipeline of opportunities), funding Ardent Health Services’ successful acquisition of LHP Hospital Group, and committing to selective senior housing operating portfolio (“SHOP”) and medical office building (“MOB”) development and redevelopment deals.

 

We accelerated our strategic and highly profitable disposition program, closing greater than $900 million in profitable dispositions and receipt of timely loan repayments, including substantially exiting the skilled nursing business. We recognized over $700 million in gains.

 

Although below our historical average, our 0.7% total stockholder return (“TSR”) in 2017 outperformed the three large-cap diversified healthcare REITs in 2017 and our TSR ranked first in this group for the one-, three-, five- and 10-year periods ended December 31, 2017 (and since 2000), demonstrating short- and long-term outperformance during varied economic cycles. We were also the only large-cap diversified healthcare real estate investment trust (“REIT”) to achieve year-over-year normalized funds from operations (“FFO”) per share* growth in 2017, finishing at $4.16 FFO per share.

 

We grew our dividend by 5% in 2017.

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*                 Net debt to adjusted pro forma EBITDA and normalized FFO are not calculated according to U.S. generally accepted accounting principles (“GAAP”), but please see Annex A for reconciliations of these performance measures to our GAAP earnings (the most directly comparable GAAP measure). In addition, please see Annex A for a discussion of how we calculate same-store cash NOI.

 

 

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Portfolio Highlights

 

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Our well-curated property portfolio is the most diversified portfolio mix in the industry. With more than 1200 assets, we continued to reshape, develop and elevate our portfolio throughout the year. We invested $860 million in active development and redevelopment projects, with an additional $113 million invested in completed projects. In 2017, this enhanced portfolio generated record $3.6 billion revenue and $2.1 billion NOI and achieved same-store cash NOI growth of 2.5%, at the high end of our initial guidance. In addition, net cash provided by operating activities grew by 5%, up to a record level. This was achieved through proactive asset management, including value-creating investments, profitable disposal of skilled nursing, lower-growth properties and other assets. In addition, we successfully negotiated collaborative and mutually beneficial arrangements with our leading operators, such as the successful recapitalization of Atria Senior Living.

 

 

 

 

 

 

 

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Balance Sheet and Liquidity Highlights

 

In 2017, we demonstrated excellence in capital markets, further strengthening our balance sheet and enhancing our liquidity, key long-term objectives that protect stockholder value and enable opportunistic value-creating activity:

 

ü     completing $4.5 billion in efficient long-term capital raises;

 

ü     issuance of more than $1 billion in long-term debt at attractive rates;

 

ü     Upsizing by 50% and extending our revolving credit facility, with $3 billion in borrowing capacity at improved pricing and adding a $400 million revolving construction credit facility to facilitate funding our broadening development pipeline; and

 

ü     ending the year with outstanding financial strength and flexibility, underpinning the reaffirmation of our BBB+ credit ratings and demonstrated by our 5.7x net debt to adjusted pro forma EBITDA ratio and 4.6x fixed charge coverage.

 

 

Investment Highlights

 

We made and committed to investments of $1.8 billion of attractive, value-creating investments, further diversifying and improving the quality of our portfolio. We grew our university-based life sciences and innovation business with significant developments and acquisitions (grown by 37% since inception with a strong pipeline of opportunities), funded Ardent Health Services’ successful acquisition of LHP Hospital Group, and committed to selective SHOP and MOB development and redevelopment deals.

 

We closed greater than $900 million in profitable dispositions and receipt of timely loan repayments in 2017. We substantially exited the skilled nursing business, disposing of more than $700 million in skilled nursing assets. Our gains for the year exceeded $700 million.

 

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Environmental, Social and Governance Highlights

 

While continuing to deliver significant value to stockholders, we were recognized for our leadership, diversity and environmental, social and governance (“ESG”) practices. Outperforming industry peers, Ventas was named to the Dow Jones Sustainability North America Index for the first time, achieving top quartile performance among real estate companies in North America. Ranking first among public healthcare REITs for sustainability practices, we retained our GRESB Green Star designation for the fourth year, and received the National Association of Real Estate Investment Trusts (“NAREIT”) Health Care “Leader in the Light” Award for the second time. We were also recognized as a “Winning Company” in the 2020 Women on Boards Gender Diversity Index which showcases Fortune 1000 Companies with 20 percent or greater female composition of their Boards and a “Corporate Champion” by the Women’s Forum of New York for having an industry-leading 30% female Board of Directors.

 

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Across our portfolio, we are undertaking wide-scale, long-term environmental programs, local sustainability initiatives and pilots that meet our objectives of protecting the planet while improving the efficiency of our portfolio and lowering operating costs. Our focus takes a systematic approach to reducing the energy, water and landfill waste footprint of our diverse, high-quality property portfolio. We are on track to meet our 10-year targets to reduce our environmental impact from a 2013 baseline, which includes 10% reductions in energy usage and greenhouse gas emissions, 5% reduction in water usage and 4% reduction in landfill waste. We own an industry-leading portfolio of 69 ENERGY STAR® Certified buildings and 37 LEED® Certified buildings, which includes over $500 million of investment in 8 active developments pursuing LEED certification.

 

As a good corporate citizen and industry leader, Ventas has a responsibility to actively engage in improving the lives of others in the communities in which we live and work. The Ventas Charitable Foundation contributed almost $1 million to 80 organizations in 2017, including our ongoing 5-year, $1 million marquee partnership with the Greater Chicago Food Depository to alleviate senior hunger. We encourage all our employees to give back to their communities, and many members of our team are deeply involved in a wide variety of organizations at both the local and national level. To applaud this dedication and passion, a portion of the annual donations made by our Ventas Charitable Foundation are channeled into an Employee Charitable Fund. This fund provides grants to organizations that are directly nominated by our employees, with preference given to those organizations where employees are actively engaged. More than 90 percent of requests have been met and in excess of $500,000 given to these worthy causes since the fund was established. In addition, we contributed $135,000 to our operating partners’ funds to assist individuals and families affected and displaced by hurricanes in 2017.

 

Our comprehensive commitment to ESG principles and corporate citizenship starts with our people. Ventas creates a culture that attracts and retains the industry’s best employees to work in a cohesive and collaborative team environment that shares a passion for innovation, creative problem-solving, flawless execution and, above all, excellence. We also intentionally develop and recruit a diverse workforce and Board. Our employee mix by gender is balanced at 48% female to 52% male and our Board is gender diverse with 30% women. Our employees share a commitment to maintaining the highest levels of ethics, integrity and transparency and are dedicated to the pursuit of sustainable business practices and the importance of corporate citizenship. We earn exceptional employee engagement scores by focusing on employee development initiatives, employee networks, commitment to ESG and philanthropy efforts and provision of industry-leading health and wellness benefits to employees and their families, as well as career development and educational opportunities. For 2017, our employees received an average of 16 hours of training, which reflects our commitment to our employees.

 

 

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We were named among Fortune’s “World’s Most Admired Companies” and received numerous prestigious awards in 2017 and early 2018 in recognition of our philanthropy, reputation, commitment to superior governance and results, industry leaders, exemplary stewardship and world class team.

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2017 Executive Compensation

 

Our executive compensation programs are designed to attract, retain and motivate talented executives, to reward executives for the achievement of pre-established company and tailored individual goals consistent with our strategic plan and to link compensation to company performance. We compensate our executives primarily through base salary, annual cash incentive compensation and long-term equity incentive compensation. Our executive compensation philosophy emphasizes performance-based incentive compensation over fixed cash compensation, so that the vast majority of total direct compensation is variable and not guaranteed. In addition, as shown in the graphic below, we deliver the majority of our executive pay in the form of equity incentive compensation rather than cash to create stronger alignment with our stockholders. We believe this structure appropriately focuses our executive officers on the creation of long-term value and encourages prudent evaluation of risks.

 

 

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2017 Executive Compensation Decisions

 

In 2017, our compensation decisions once again reflected strong alignment between pay and performance. In determining the incentive compensation paid to our Named Executive Officers for 2017, our Executive Compensation Committee (the “Compensation Committee”) of our Board of Directors (the “Board”), who is responsible for evaluating and setting the compensation of our Named Executive Officers other than the Chief Executive Officer, and the independent members of our Board, who are responsible for evaluating and setting the compensation for our Chief Executive Officer pursuant to the Company’s Guidelines on Governance (the Compensation Committee and the independent members of our Board are collectively referred to as the “Compensation Board Members” herein), rigorously evaluated company and individual performance relative to the pre-established measures and goals under our annual cash and long-term equity incentive plans.

 

 

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Although below our historical average, our 0.7% TSR in 2017 outperformed the three large-cap diversified healthcare REITs in 2017 and our TSR ranked first in this group for the one-, three-, five- and 10-year periods ended December 31, 2017 (and since 2000), demonstrating short- and long-term outperformance during varied economic cycles. In addition, we were the only large-cap diversified healthcare REIT to achieve year-over-year normalized FFO per share growth in 2017, finishing at $4.16 per share. We delivered excellent strategic, financial and operating performance, and increased our dividend by 5% in 2017.

 

The graph below illustrates our long-term pay-for-performance alignment by comparing our Chief Executive Officer’s total direct compensation to our TSR performance (indexed to a 2012 base year) for each of the past five years.

 

 

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“Total Direct Compensation” includes, for the applicable year, base salary, actual annual cash incentive awards earned, the value of long-term equity incentive awards earned or granted (as applicable) and “All Other Compensation” as reported in the Summary Compensation Table. This graph differs from compensation reported in the 2017 Summary Compensation Table in the following respects:

 

ü                        For 2012-2016, the period during which our backward-looking plan was in effect, the graph aligns the value of long-term equity incentive awards with the performance year for which they were earned, rather than the year in which they were granted (e.g., long-term equity incentive awards granted in January 2017 for 2016 performance are shown in the graph above as 2016 compensation), consistent with the manner in which our Compensation Board Members evaluated compensation and pay-for-performance under the previous backward-looking plan for our Named Executive Officers.

 

ü                        For 2017, the first year our new forward-looking long-term equity incentive plan was in effect, we report the grant date fair value (approximating target level of performance) of the performance-based restricted stock units (“pRSUs”) granted in 2017 that may be earned, if at all, based on performance relative to performance goals measured from January 1, 2017 through December 31, 2019. Actual payout will occur in 2020 and will range from 0% - 220% of the target value.

 

 

 

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ü                        The 2017 figure excludes one-time time-based restricted stock unit (“RSU”) transition awards received by certain of our Named Executive Officers, which were designed to partially mitigate the impact of a reduction in the realized pay for our Named Executive Officers in 2018 and 2019 resulting from the transition from a backward-looking long-term equity incentive plan to a forward-looking plan because the new forward-looking awards do not pay out, if at all, until 2020. These awards are excluded because the Compensation Committee does not view these awards as a continuing feature of the long-term incentive plan.

 

 

 

 

 

 

Recurring CEO compensation is substantially lower than reflected in the 2017 Summary Compensation Table because SEC rules require us to report all equity grants made in 2017, including the final 2016 “backward-looking” equity grant and the non-recurring transition awards. For 2017, target CEO total direct compensation is $11.3 million on a recurring, normalized basis.

 

 

 

2017 Annual Cash Incentive Awards

 

For 2017, annual cash incentive awards were based on our performance with respect to pre-established company financial goals. For our Named Executive Officers (other than Mr. Lillibridge), the goals were normalized FFO per share (40% of the target award opportunity), liquidity coverage ratio (15%), fixed charge coverage ratio at year end (10%), and the achievement of individual objectives tailored for each Named Executive Officer (35%). For Mr. Lillibridge, the goals were normalized FFO per share (22% of the target award opportunity), liquidity coverage ratio (8%), fixed charge coverage ratio at year end (5%), segment-specific objectives (40%) and the achievement of individual objectives (25%).

 

As further explained in the “Compensation Discussion and Analysis” section below, our performance in 2017 with respect to these metrics resulted in cash incentive awards earned by our Named Executive Officers between the target and maximum levels.

 

2017 Long-Term Equity Incentive Awards

 

As further explained below, in early 2017, we transitioned from a backward-looking long-term equity incentive plan to a forward-looking plan. For 2017, long-term equity incentive awards were split between (i) pRSUs, earned entirely based on our performance with respect to pre-established quantitative measures, specifically (a) three-year TSR relative to the MSCI REIT Index, (b) three-year TSR relative to the FTSE NAREIT Equity Health Care Index and (c) the three-year average of net debt to adjusted pro forma EBITDA, a risk management measure (which together accounted for 60% of the long-term equity incentive award opportunity), and (ii) time-based RSUs, vesting in equal one-third increments beginning on the first anniversary of the grant date (which accounted for the remaining 40% of the long-term equity incentive award opportunity).

 

2017 Compensation Practices at a Glance

 

ü    DO provide executive officers with the opportunity to earn market-competitive compensation through a mix of cash and equity compensation, with a strong emphasis on performance-based incentive awards

 

û     DO NOT permit new tax gross-up arrangements under our anti-tax gross-up policy and do not provide our Chief Executive Officer with tax gross-ups with respect to payments made in connection with a change of control

 

 

 

ü    DO have a robust peer selection process and benchmark executive compensation to target the median of our comparative group of peer companies

 

û     DO NOT provide guaranteed minimum payouts or uncapped award opportunities

 

 

 

ü    DO evaluate relative TSR when determining performance under incentive awards to enhance stockholder alignment

 

û     DO NOT have employment agreements with executive officers that provide single-trigger change of control benefits

 

 

 

ü    DO require executive officers and directors to own and retain shares of our common stock with significant value to further align interests with our stockholders

 

û     DO NOT base incentive awards on a single performance measure, thereby discouraging unnecessary or excessive risk-taking

 

 

 

ü    DO enhance executive officer retention with time-based vesting schedules for RSUs and pRSUs earned based on future three-year performance

 

 

û     DO NOT permit liberal share recycling under our 2012 Incentive Plan

 

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ü    DO enable Board to “claw back” incentive compensation in the event of a financial restatement pursuant to recoupment policy

 

û     DO NOT permit executive officers or directors to engage in derivative or other hedging transactions in our securities

 

 

 

ü    DO align pay and performance by linking a substantial portion of compensation to the achievement of pre-established performance measures that drive stockholder value

 

û     DO NOT provide executive officers with pension or retirement benefits other than pursuant to a broad-based 401(k) plan and do not provide executive officers with excessive perquisites or other personal benefits

 

 

 

ü    DO maintain a Compensation Committee comprised solely of independent directors

 

û     DO NOT permit repricing of underwater stock options or granting of discounted stock options or SARs

 

 

 

ü    DO engage an independent compensation consultant to advise the Compensation Committee on executive compensation matters

 

û     DO NOT permit executive officers or directors to pledge or hold our securities in margin accounts without preapproval by the Audit Committee (no executive officer or director did so at any time during 2017)

 

2017 Compensation Actions and Responsive Redesign of Long-Term Incentive Compensation for 2017-2019 Performance Period

 

We received support from over 95% of our stockholders with respect to our 2017 advisory vote on our Named Executive Officers’ compensation. In response to our 2016 advisory vote on our Named Executive Officers’ compensation and our Compensation Committee Chairman’s conversations with a significant number of our largest investors, we carefully considered constructive feedback on our executive compensation program and corporate governance provided to us by our largest stockholders and redesigned our long-term incentive compensation program, beginning with the 2017-2019 performance period. The key features of our responsive redesign of our long-term incentive compensation program are set forth below and are described in further detail in the “Compensation Discussion and Analysis” section.

 

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2018 Annual Meeting of Stockholders

 

Voting and Meeting Information

 

You are entitled to vote at the 2018 Annual Meeting of Stockholders if you were a stockholder of record at the close of business on March 16, 2018, the record date for the meeting. On the record date, there were 356,310,392 shares of common stock issued and outstanding and entitled to vote at the meeting.

 

Information regarding the meeting date and location is set forth below.

 

When:                   Tuesday, May 15, 2018, 8:00 a.m. local (Central) time

 

Where:               James C. Tyree Auditorium, 353 North Clark Street, Chicago, Illinois 60654

 

You may vote at the Annual Meeting through any of the following methods:

 

(                     Vote by Telephone:  Call (800) 690-6903, 24 hours a day, seven days a week through May 14, 2018

 

8                       Vote on the Internet:  Visit www.proxyvote.com, 24 hours a day, seven days a week through May 14, 2018

 

,                   Vote by Mail:  Request, complete and return a copy of the proxy card in the postage-paid envelope provided

 

I                        Vote in Person:  Request, complete and deposit a copy of the proxy card or complete a ballot at the Annual Meeting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Proposals Requiring Your Vote

 

Proposal 1 — Election of Directors (see page 72)

 

The following table provides summary information about our nine director-nominees, each of whom currently serves on our Board. Age is as of the date of the 2018 Annual Meeting. Directors are elected annually by a majority of votes cast in uncontested elections. Our Board recommends that you vote FOR each of the named director-nominees.

 

 

 

Name

Age

 

Director

since

Primary Position

Current

Committees**

Principal Skills

 

 

Melody C. Barnes*

54

2014

Co-Founder and Principal of MB Squared Solutions LLC and Chair, Aspen Institute Forum for Community Solutions

 

N

Public Policy, Government Relations, Strategic Planning, Leadership Development

 

 

Debra A. Cafaro

60

1999

Chairman and CEO of Ventas

E; I

Real Estate Industry, Corporate Finance, Mergers and Acquisitions, Capital Markets, Strategic Planning

 

 

 

Jay M. Gellert*

64

2001

Former President and CEO of Health Net, Inc.

C; E; I

Healthcare Industry, Mergers and Acquisitions, Strategic Planning, Government Relations, Executive Compensation

 

 

 

Richard I. Gilchrist*

72

2011

Senior Advisor to The Irvine Company and Chairman of TIER REIT, Inc.

C; I; N

Real Estate Industry, Mergers and Acquisitions, Strategic Planning, Executive Compensation, Corporate Governance

 

 

 

Matthew J. Lustig*

57

2011

Head of North America Investment Banking and Head of Real Estate and Lodging at Lazard Frères & Co. LLC

E; I

Real Estate Industry, Corporate Finance, Mergers and Acquisitions, Capital Markets, Strategic Planning, International Transactions

 

 

 

Roxanne M. Martino*

61

2016

Managing Partner of OceanM19; former CEO, Partner and Investment Committee Chairperson of Aurora Investment Management L.L.C.

 

C

Corporate Finance, Mergers and Acquisitions, Capital Markets, Strategic Planning

 

 

Walter C. Rakowich*

60

2016

Former CEO of Prologis, Inc.

A

Real Estate Industry, Corporate Finance, Mergers and Acquisitions, Capital Markets, Strategic Planning

 

 

 

Robert D. Reed*

65

2008

Former Senior Vice President and Chief Financial Officer of Sutter Health

A; E

Healthcare Industry, Corporate Finance, Strategic Planning, Capital Intensive Operations, Pension Fund Investments

 

 

 

James D. Shelton*

64

2008

Former Chairman of Omnicare, Inc.; former CEO and Chairman of Triad Hospitals, Inc.

C; E; N

Healthcare Industry, Mergers and Acquisitions, Strategic Planning, Capital Intensive Operations, Government Relations, Executive Compensation, Corporate Governance

 

 

 

 

*               Independent Director

 

             Presiding Director

 

**           Abbreviations: A = Audit and Compliance; C = Executive Compensation; E = Executive; I = Investment; N = Nominating and Corporate Governance.  Bold print indicates committee chair.

 

Proposal 2 — Ratification of the Selection of KPMG LLP as Our Independent Registered Public Accounting Firm for Fiscal Year 2018 (see page 78)

 

KPMG audited our financial statements for the year ended December 31, 2017 and has been our independent registered public accounting firm since July 2014. Our Board recommends that you vote FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal year 2018.

 

 

 

 

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Proposal 3 — Advisory Vote to Approve Our Executive Compensation (see page 80)

 

We submit an advisory vote to approve our executive compensation to our stockholders on an annual basis. Because your vote is advisory, it will not be binding on the Board or our Compensation Committee. However, your vote is important because it will be taken into account when making future decisions relating to executive compensation.

 

Our executive compensation programs are designed to attract, retain and motivate talented executives, to reward executives for the achievement of pre-established Company and tailored individual goals consistent with our strategic plan and to link compensation to Company performance. We compensate our executives primarily through base salary, annual cash incentive compensation and long-term equity incentive compensation. Our executive compensation philosophy emphasizes performance-based incentive compensation over fixed cash compensation, so that the vast majority of total direct compensation is variable and not guaranteed. In addition, we deliver the majority of our executive pay in the form of equity incentive compensation rather than cash to create stronger alignment with our stockholders.

 

As summarized above and described in detail in the Compensation Discussion and Analysis below, we have also taken a number of actions designed to directly respond to stockholder feedback regarding our executive compensation corporate governance programs, including moving to a forward-looking long-term equity incentive plan in early 2017, incorporating double-trigger change of control equity vesting, eliminating the discretionary component from our long-term equity incentive plan, elongating equity vesting periods, increasing the proportion of long-term equity awards that may be earned based on relative TSR metrics, voluntarily adopting proxy access for our stockholders and other actions.

 

Our Compensation Board Members have carefully evaluated our overall executive compensation program and believe that it is well designed to achieve our objectives of retaining talented executives and rewarding superior performance in the context of our business risk environment. By maintaining a performance- and achievement-oriented environment that provides the opportunity to earn market-competitive levels of compensation, we believe that our executive compensation program is structured optimally to support our goal to deliver sustained, superior returns to stockholders, and our exceptional long-term performance demonstrates the success of this program. For these reasons, our Board recommends that you vote FOR the approval, on an advisory basis, of our executive compensation.

 

Electronic Document Delivery to Stockholders

 

Instead of receiving future copies of our Notice of Annual Meeting, Proxy Statement and Annual Report by mail, stockholders of record and most beneficial owners may elect to receive an e-mail that will provide electronic links to these documents. Electronic document delivery saves us the cost of producing and mailing documents and will give you an electronic link to the proxy voting site. It is also more environmentally friendly.

 

We are making this Proxy Statement and the materials accompanying it available to our stockholders via the Internet, as permitted by SEC rules. We will mail to stockholders a Notice of Internet Availability containing instructions on how to access our proxy materials and how to vote by proxy online. Starting on or about April 2, 2018, we will also mail this Proxy Statement and the materials accompanying it to stockholders who have requested paper copies. If you would like to receive a printed copy of our proxy materials by mail, you should follow the instructions for requesting those materials included in the Notice that we mail to you.

 

IMPORTANT NOTICE REGARDING INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON MAY 15, 2018:

 

This Proxy Statement, our 2017 Form 10-K and our 2017 Annual Report are available at

www.proxyvote.com.

 

Questions and Answers

 

More information about proxy voting, proxy materials and attending the Annual Meeting can be found in the “Questions and Answers” section of this Proxy Statement.

 

 

 

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ANNUAL MEETING INFORMATION

 

Quorum

 

The holders of a majority of the shares of our common stock outstanding as of the close of business on the record date for the Annual Meeting, March 16, 2018, must be present in person or represented by proxy to constitute a quorum to transact business at the Annual Meeting. Stockholders who abstain from voting and broker non-votes are counted for purposes of establishing a quorum. A broker non-vote occurs when a beneficial owner does not provide voting instructions to the beneficial owner’s broker or custodian with respect to a proposal on which the broker or custodian does not have discretionary authority to vote.

 

Who Can Vote

 

Only Ventas stockholders of record at the close of business on the record date are entitled to vote at the Annual Meeting. As of that date, 356,310,392 shares of our common stock, par value $0.25 per share, were outstanding. Each share of our common stock entitles the owner to one vote on each matter properly brought before the Annual Meeting. However, certain shares designated as “Excess Shares” (generally any shares owned by a beneficial owner in excess of 9.0% of our outstanding common stock) or as “Special Excess Shares” pursuant to our Amended and Restated Certificate of Incorporation, as amended (our “Charter”), may not be voted by the record owner of those shares and will be voted in accordance with Article IX of our Charter.

 

A list of all stockholders entitled to vote at the Annual Meeting will be available for inspection by any stockholder for any purpose reasonably related to the meeting at the Annual Meeting and during ordinary business hours for the ten days preceding the meeting at our principal executive offices located at 353 North Clark Street, Suite 3300, Chicago, Illinois 60654.

 

How to Vote

 

You may vote your shares in one of several ways, depending on how you own your shares:

 

Stockholders of Record

 

If you own shares registered in your name (a “stockholder of record”), you may:

 

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Vote your shares by proxy by calling (800) 690-6903, 24 hours a day, seven days a week until 11:59 p.m. Eastern time on May 14, 2018. Please have your proxy card in hand when you call. The telephone voting system has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote.

 

 

OR

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Vote your shares by proxy via the website www.proxyvote.com, 24 hours a day, seven days a week until 11:59 p.m. Eastern time on May 14, 2018. Please have your proxy card in hand when you access the website. The website has easy-to-follow instructions and provides confirmation that the system has properly recorded your vote.

 

 

OR

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If you have requested or receive paper copies of our proxy materials by mail, vote your shares by proxy by signing, dating and returning the proxy card in the postage-paid envelope provided. If you vote by telephone or over the Internet, you do not need to return your proxy card by mail.

 

 

OR

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Vote your shares by attending the Annual Meeting in person and depositing your proxy card at the registration desk (if you have requested paper copies of our proxy materials by mail) or completing a ballot that will be distributed at the Annual Meeting.

 

Beneficial Owners

 

If you own shares registered in the name of a broker, bank or other custodian (a “beneficial owner”), follow the instructions provided by your broker, bank or custodian to instruct it how to vote your shares. If you want to vote your

 

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shares in person at the Annual Meeting, contact your broker, bank or custodian to obtain a legal proxy or broker’s proxy card that you should bring to the Annual Meeting to demonstrate your authority to vote.

 

If you do not instruct your broker, bank or custodian how to vote, it will have discretionary authority, under current New York Stock Exchange (“NYSE”) rules, to vote your shares in its discretion on the ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal year 2018 (Proposal 2). However, your broker, bank or custodian will not have discretionary authority to vote on the election of directors (Proposal 1) or the advisory vote to approve our executive compensation (Proposal 3) without instructions from you. As a result, if you do not provide instructions to your broker, bank or custodian, your shares will not be voted on Proposal 1 or Proposal 3.

 

Votes by Proxy

 

All shares that have been properly voted by proxy and not revoked will be voted at the Annual Meeting in accordance with the instructions contained in the proxy. Shares represented by proxy cards that are signed and returned, but do not contain any voting instructions will be voted consistent with the Board’s recommendations:

 

ü

FOR the election of all director-nominees named in this Proxy Statement (Proposal 1);

ü

FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal year 2018 (Proposal 2);

ü

FOR the approval, on an advisory basis, of our executive compensation (Proposal 3); and

ü

In the discretion of the proxy holders, on such other business as may properly come before the Annual Meeting.

 

OUR BOARD OF DIRECTORS

 

Our Board provides guidance and oversight with respect to our financial and operating performance, strategic plans, key corporate policies and decisions and enterprise risk management. Among other matters, our Board considers and approves significant acquisitions, dispositions and other transactions and advises and counsels senior management on key financial and business objectives. Members of the Board monitor our progress with respect to these matters on a regular basis, including through presentations made at Board and committee meetings by our Chief Executive Officer, Chief Financial Officer, Chief Investment Officer and other members of senior management.

 

Criteria for Board Membership

 

Our Guidelines on Governance set forth the process by which our Nominating and Corporate Governance Committee (the “Nominating Committee”) identifies and evaluates nominees for Board membership. In accordance with this process, the Nominating Committee annually considers and recommends to the Board a slate of directors for election at the next annual meeting of stockholders. In selecting this slate, the Nominating Committee considers the following: incumbent directors who have indicated a willingness to continue to serve on our Board; candidates, if any, nominated by our stockholders; and other potential candidates identified by the Nominating Committee. Additionally, if at any time during the year a seat on the Board becomes vacant or a new seat is created, the Nominating Committee considers and recommends to the Board a candidate for appointment to fill the vacant or newly-created seat.

 

The Nominating Committee considers different perspectives, skill sets, education, ages, genders, ethnic origins and business experience in its annual nomination process. In general, the Nominating Committee seeks to include on our Board a complementary mix of individuals with diverse backgrounds, knowledge and viewpoints reflecting the broad set of challenges that the Board confronts without representing any particular interest group or constituency. The Nominating Committee regularly reviews the size and composition of the Board on a holistic basis, utilizing a rigorous matrix of identified skills, experiences and other criteria for maintaining an excellent, independent Board in light of our changing requirements and seeks nominees who, taken together as a group, possess the skills, diversity and expertise appropriate for an effective Board.

 

The Nominating Committee also monitors the average tenure of our Board members and seeks to achieve a variety of director tenures in order to benefit from long-tenured directors’ institutional knowledge and newly-elected directors’ fresh perspectives. During 2015 and 2016, the Nominating Committee and the Board has taken the opportunity

 

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to refresh the composition of the Board, with our two longest-tenured directors departing from the Board and being replaced by Roxanne M. Martino and Walter C. Rakowich in 2016.

 

The Nominating Committee seeks to recommend candidates that have adequate time to devote to Board activities, recognizing that public company board of directors responsibilities command a significant portion of directors’ time. Accordingly, the Company maintains an overboarding policy that prohibits directors from simultaneously serving on more than four public company boards other than the Company’s Board.

 

In evaluating potential director candidates, the Nominating Committee considers, among other factors, the experience, qualifications and attributes listed below and any additional characteristics that it believes one or more directors should possess, based on an assessment of the needs of our Board at that time. Our Guidelines on Governance provide that, in general, nominees for membership on the Board should:

 

ü

have demonstrated management or technical ability at high levels in successful organizations;

ü

have experience relevant to our operations, such as real estate, REITs, healthcare, finance or general management;

ü

be well-respected in their business and home communities;

ü

have time to devote to Board duties; and

ü

be independent from us and not related to our other directors or employees.

 

In addition, our directors are expected to be active participants in governing our enterprise, and our Nominating Committee looks for certain characteristics common to all Board members, including integrity, independence, leadership ability, constructive and collegial personal attributes, candor and the ability and willingness to evaluate, challenge and stimulate.

 

No single factor or group of factors is necessarily dispositive of whether a candidate will be recommended by our Nominating Committee. The Nominating Committee considers and applies these same standards in evaluating individuals recommended for nomination to our Board by our stockholders in accordance with the procedures described in this Proxy Statement under “Requirements for Submission of Stockholder Proposals, Director Nominations and Other Business.” Our Board’s satisfaction of these criteria is implemented and assessed through ongoing consideration of directors and nominees by the Nominating Committee and the Board, as well as the Board’s annual self-evaluation process, as described in more detail below. Based upon these activities, our Nominating Committee and our Board believe that the director-nominees named in this Proxy Statement satisfy these criteria.

 

We have from time to time retained search firms and other third parties to assist us in identifying potential candidates based on specific criteria that we provided to them, including the qualifications described above. We may retain search firms and other third parties on similar or other terms in the future.

 

Annual Board Evaluation Process

 

The Board recognizes that a robust and constructive evaluation process is an essential component of good corporate governance and Board effectiveness. The Board and each of its committees conduct self-evaluations related to their performance on an annual basis, including an evaluation of each director. Through this process, directors provide feedback and assess Board, committee and director performance, including areas where the Board believes it is functioning effectively and areas where the Board believes it can improve.

 

Our Nominating Committee supervises the annual self-evaluations and uses various processes from year to year in order to solicit feedback, including periodic in-person interviews conducted by the Presiding Director with each of the Board members. The Board and each committee review and discuss the evaluation results, and take this information into account when assessing the qualifications of the Board and further enhancing the effectiveness of the Board and its committees over time.

 

Director Independence

 

Our Guidelines on Governance require that at least a majority of the members of our Board meet the criteria for

 

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independence under the rules and regulations of the NYSE. For a director to be considered independent under the NYSE’s listing standards, the director must satisfy certain bright-line tests, and the Board must affirmatively determine that the director has no direct or indirect material relationship with us. Not less than annually, our Board evaluates the independence of each non-management director on a case-by-case basis by considering any matters that could affect his or her ability to exercise independent judgment in carrying out the responsibilities of a director, including all transactions and relationships between that director, members of his or her family and organizations with which that director or family members have an affiliation, on the one hand, and us, our subsidiaries and our management, on the other hand. Any such matters are evaluated from the standpoint of both the director and the persons or organizations with which the director has an affiliation. Each director abstains from participating in the determination of his or her independence.

 

Based on its most recent review, the Board has affirmatively determined that each of our non-employee directors has no direct or indirect material relationship with us and qualify as independent under the NYSE’s listing standards. Ms. Cafaro is not considered independent under the NYSE listing standards due to her employment as our Chief Executive Officer.

 

Leadership Structure and Independent Presiding Director

 

Our Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide effective oversight of management and a fully engaged, high-functioning Board. The Board understands that no single approach to Board leadership is universally accepted and that the appropriate leadership structure may vary based on a company’s size, industry, operations, history and culture. Consistent with this understanding, our Board, led by our Nominating Committee, annually assesses its leadership structure in light of our operating and governance environment at the time to achieve the optimal model for us and for our stockholders. Following its most recent review, the Board has determined that our existing leadership structure—under which our Chief Executive Officer also serves as Chairman of the Board and a Presiding Director assumes specific responsibilities on behalf of the independent directors—is effective, provides the appropriate balance of authority between those persons charged with overseeing our company and those who manage it on a day-to-day basis and achieves the optimal governance model for us and for our stockholders.

 

Under our Fifth Amended and Restated By-Laws, as amended (our “By-Laws”), and our Guidelines on Governance, our Board has discretion to determine whether to separate or combine the roles of Chief Executive Officer and Chairman of the Board as part of its leadership structure evaluation. Ms. Cafaro has served in both capacities since 2003, and our Board continues to believe that her combined role is most advantageous to us and our stockholders. Ms. Cafaro possesses extensive knowledge of the issues, opportunities and risks facing us, our business and our industry and has consistently demonstrated the vision and leadership necessary to focus the Board’s time and attention on the most critical matters and to facilitate constructive dialogue among Board members on strategic issues. Moreover, the combined roles enable decisive leadership, clear accountability and consistent communication of our message and strategy to all of our stakeholders. These leadership attributes are uniquely important to our company given the value to our business of opportunistic capital markets execution, our history of rapid and significant growth, and our culture of proactive engagement and risk management.

 

In connection with Ms. Cafaro’s service as our Chief Executive Officer and Chairman of the Board, our Guidelines on Governance require that the independent members of our Board annually select one independent director to serve as Presiding Director, whose specific responsibilities include, among other things, presiding at all meetings of our Board at which the Chairman is not present, including executive sessions and all other meetings of the independent directors. The Presiding Director also serves as liaison between the Chairman and the independent directors, approves information sent to the Board and approves Board meeting agendas and meeting schedules to assure that there is sufficient time for discussion of all agenda items. The Presiding Director has authority to call meetings of the independent directors and, if requested by major stockholders, ensures that he or she is available for consultation and direct communication with stockholders. In addition, the Presiding Director reviews with our General Counsel potential conflicts of interest and has such other duties as may be assigned from time to time by the independent directors or the Board. Although the Presiding Director is elected on an annual basis, the Board generally expects that he or she will serve for more than one year. James D. Shelton has served as our Presiding Director since 2016.

 

Management Succession Planning

 

Our Board regularly reviews short- and long-term succession plans for the Chief Executive Officer and other senior management positions. In assessing possible Chief Executive Officer candidates, our independent directors identify the skills, experience and attributes they believe are required to be an effective leader in light of the Company’s

 

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strategic plan, business opportunities and challenges. The Board employs a similar approach with respect to evaluating possible candidates for other senior management positions. In general, the Board’s management succession planning is designed to anticipate both “planned” successions, such as those arising from anticipated retirements, as well as unexpected successions, such as those occurring when an executive leaves suddenly to take a new position, or due to death, disability or other unforeseen events.

 

Committees

 

Our Board has five standing committees that perform certain delegated functions for the Board: the Audit and Compliance Committee (the “Audit Committee”); the Compensation Committee; the Executive Committee; the Investment Committee; and the Nominating Committee. Each of the Audit, Compensation and Nominating Committees operates under a written charter that is available in the Corporate Governance section of our website at  www.ventasreit.com/investor-relations/corporate-governance . We also provide copies of the Audit, Compensation and Nominating Committee charters, without charge, upon request to our Corporate Secretary at Ventas, Inc., 353 North Clark Street, Suite 3300, Chicago, Illinois 60654. Information on our website is not a part of this Proxy Statement. Additional details regarding the five standing committees of our Board are described below.

 

Board and Committee Meetings

 

Our Board held a total of six meetings during 2017. Evidencing a strong commitment to our company, each director attended at least 75% of the total meetings of the Board and the committees on which he or she served that were held during 2017. The table below provides current membership and 2017 meeting information for each of our Board committees:

 

Name

Audit
Committee

Compensation
Committee

Executive
Committee

Investment
Committee

Nominating
Committee

 

Melody C. Barnes*

 

 

 

 

Member

Debra A. Cafaro

 

 

Member

Member

 

Jay M. Gellert*

 

Chair

Member

Member

 

Richard I. Gilchrist*

 

Member

 

Chair

Member

Matthew J. Lustig*

 

 

Member

Member

 

Roxanne M. Martino*

 

Member

 

 

 

Walter C. Rakowich*

Member

 

 

 

 

Robert D. Reed*

Chair

 

Member

 

 

Glenn J. Rufrano*

Member

 

 

 

 

James D. Shelton*

 

Member

Chair

 

Chair

Total Meetings in 2017

5

8

0

1

1

 

* Independent Director

 

 Presiding Director

 

Our independent directors meet in executive session, outside the presence of management, at each regularly scheduled quarterly Board meeting and at other times as necessary or desirable. The Presiding Director (currently Mr. Shelton) chairs all regularly scheduled executive sessions of the Board and all other meetings of the independent directors. Members of our Audit, Compensation and Nominating Committees also meet in executive session, outside the presence of management, at each regularly scheduled committee meeting and at other times as necessary or desirable.

 

We strongly encourage, but do not require, directors to attend our annual meetings of stockholders. All ten directors who were nominated for reelection at our 2017 Annual Meeting of Stockholders attended that meeting.

 

How to Communicate with Directors

 

Stockholders and other parties interested in communicating directly with our Board or any director on Board-related issues may do so by writing to Board of Directors, c/o Corporate Secretary, Ventas, Inc., 353 North Clark Street,

 

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Suite 3300, Chicago, Illinois 60654, or by submitting an e-mail to bod@ventasreit.com. Additionally, stockholders and other parties interested in communicating directly with the Presiding Director of the Board or with the independent directors as a group may do so by writing to Presiding Director, Ventas, Inc., 353 North Clark Street, Suite 3300, Chicago, Illinois 60654, or by sending an e-mail to independentbod@ventasreit.com. Communications addressed to our Board or individual members of the Board are screened by our Corporate Secretary for appropriateness before distributing to the Board, or to any individual director or directors, as applicable.

 

AUDIT AND COMPLIANCE COMMITTEE

 

Our Audit Committee assists our Board in fulfilling its responsibilities relating to our accounting and financial reporting practices, including oversight of the quality and integrity of our financial statements; our compliance with legal and regulatory requirements; the qualifications, independence and performance of our independent registered public accounting firm and the performance of our internal audit function.

 

The Audit Committee maintains free and open communication with the Board, our independent registered public accounting firm, our internal auditor and our financial and accounting management. Our Audit Committee meets separately in executive session, outside the presence of management, with each of our independent registered public accounting firm and our internal auditor at each regularly scheduled meeting and at other times as necessary or desirable.

 

Our Board has determined that each member of the Audit Committee is independent and satisfies the independence standards of the Sarbanes-Oxley Act of 2002 and related rules and regulations of the SEC and the NYSE listing standards, including the additional independence requirements for audit committee members. The Board has also determined that each member of the Audit Committee is financially literate and qualifies as an “audit committee financial expert” for purposes of the SEC’s rules.

 

The Nominating Committee recognizes that Audit Committee members must have adequate time to devote to Audit Committee activities, given that such responsibilities command a significant portion of directors’ time. Accordingly, the Company maintains a policy prohibiting Audit Committee members from simultaneously serving on more than two public company audit committees other than the Company’s. The policy grandfathers public company audit committees for which directors are serving as of the policy adoption date.

 

EXECUTIVE COMMITTEE

 

Our Board has delegated to our Executive Committee the power to direct the management of our business and affairs in emergency situations during intervals between meetings of the Board, except for matters specifically reserved for our Board and its other committees. The Executive Committee exercises its delegated authority only under extraordinary circumstances and has not held a meeting since 2002.

 

EXECUTIVE COMPENSATION COMMITTEE

 

Our Compensation Committee has primary responsibility for the design, review, approval and administration of all aspects of our executive compensation program. The Compensation Committee reviews the performance of, and makes all compensation decisions for, each of our executive officers other than our Chief Executive Officer. Our Compensation Committee also reviews the performance of, and makes compensation recommendations to the independent members of our Board for, our Chief Executive Officer.

 

The Compensation Committee meets throughout the year to review our compensation philosophy and its continued alignment with our business strategy and to consider and approve our executive compensation program for the subsequent year. With the assistance of a nationally-recognized, independent compensation consultant, the Compensation Committee discusses changes, if any, to the program structure, assesses the appropriate peer companies for benchmarking purposes, sets base salaries and incentive award opportunities, establishes the applicable performance measures and related goals under our incentive plans, evaluates performance in relation to the established measures and goals and determines annual cash and long-term equity incentive awards for our executive officers.

 

Our executive officers provide support to our Compensation Committee by coordinating meeting logistics, preparing and disseminating relevant financial and other information regarding us and the companies in our compensation peer group as a supplement to the comparative market data prepared by our independent compensation consultant and

 

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making recommendations with respect to performance measures and related goals. Our Chief Executive Officer attends meetings at the Compensation Committee’s request and recommends to the Compensation Committee compensation changes affecting our other executive officers. However, our Chief Executive Officer plays no role in setting her own compensation. At various times, our General Counsel and Corporate Secretary, our Assistant General Counsel, Corporate & Securities and our Chief Human Resources Officer may also attend meetings at the Compensation Committee’s request to act as secretary and record the minutes of the meetings, provide updates on legal developments and make presentations regarding certain organizational matters. Our Compensation Committee meets separately in executive session, without management present, at each regularly scheduled meeting and at other times as necessary or desirable.

 

The Compensation Committee meets during the first quarter of each year, typically in January, to (i) review and certify the achievement of pre-established performance goals with respect to our annual cash and long-term equity incentive awards, (ii) determine the appropriate annual cash awards to be earned by our executive officers based on prior-year performance and (iii) determine the appropriate grants of equity awards to our executive officers, the majority of which may be earned based on future performance as measured against specified performance criteria. Our executive officers provide support to our Compensation Committee in this process, and the Chief Executive Officer makes incentive award recommendations with respect to the other executive officers.

 

Our Board has determined that each member of the Compensation Committee is independent and satisfies the independence standards of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the related NYSE listing standards, including the additional independence requirements for compensation committee members. The Board has also determined that each member of the Compensation Committee meets the additional requirements for “outside directors” set forth in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and “non-employee directors” set forth in Rule 16b-3 under the Exchange Act.

 

Compensation Committee Interlocks and Insider Participation

 

During the year ended December 31, 2017, Ms. Martino and Messrs. Gellert, Gilchrist and Shelton served on our Compensation Committee. No member of the Compensation Committee is, or has been, employed by us or our subsidiaries or is an employee of any entity for which any of our executive officers serves on the board of directors.

 

Independent Compensation Consultant

 

Under its charter, our Compensation Committee has authority to retain, and approve the terms of engagement and fees paid to, compensation consultants, outside counsel and other advisors that the Compensation Committee deems appropriate, in its sole discretion, to assist it in discharging its duties. Any compensation consultant engaged by our Compensation Committee reports to the Compensation Committee and receives no fees from us that are unrelated to its role as advisor to our Board and its committees. Our Compensation Committee meets regularly with the compensation consultant without management present. Although a compensation consultant may periodically interact with company employees to gather and review information related to our executive compensation program, this work is done at the direction and subject to the oversight of the Compensation Committee. Under the Compensation Committee charter, any compensation consultant retained by our Compensation Committee must be independent, as determined annually by the Compensation Committee in its reasonable business judgment, considering the specific independence factors set forth in Rule 10C-1 under the Exchange Act and all other relevant facts and circumstances.

 

Demonstrating our Board’s strong commitment to leading corporate governance practices by periodically rotating key consultants, Semler Brossy Consulting Group (“SBCG”) was retained to serve as our Compensation Committee’s independent compensation consultant in July 2017. Previously, Pearl Meyer (“PM”) served as our Compensation Committee’s independent compensation consultant from 2006 – July 2017. Our Compensation Committee retained PM to advise it and the independent members of our Board, as applicable, on matters related to our executive compensation levels and program design for 2017 and SBCG to advise it on matters related to 2018. Our Compensation Committee reviews the scope of work provided by its consultant on an annual basis and, in connection with PM’s prior engagement and SBCG’s engagement in 2017, determined that both PM and SBCG met the independence criteria under the Compensation Committee charter. PM and SBCG did not perform any consulting services unrelated to executive compensation for us during the year ended December 31, 2017, and PM’s and SBCG’s work for the Board and its committees has raised no conflict of interest.

 

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INVESTMENT COMMITTEE

 

The function of our Investment Committee is to review and approve proposed acquisitions and dispositions of properties and other investments meeting applicable criteria, in accordance with our Amended and Restated Investment and Divestiture Approval Policy.

 

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

 

Our Nominating Committee oversees our corporate policies and other corporate governance matters, as well as matters relating to the practices and procedures of our Board, including the following: identifying, selecting and recommending to the Board qualified director-nominees; making recommendations to the Board regarding its committee structure and composition; reviewing and making recommendations to the Board regarding non-employee director compensation; overseeing an annual evaluation of the Board and its committees; developing and recommending to the Board a set of corporate governance guidelines and the corporate code of ethics; and generally advising the Board on corporate governance and related matters.

 

Our Board has determined that each member of the Nominating Committee is independent and satisfies the NYSE listing standards.

 

CORPORATE GOVERNANCE

 

Governance Policies

 

Our Guidelines on Governance reflect the fundamental corporate governance principles by which our Board and its committees operate. These guidelines set forth general practices the Board and its committees follow with respect to structure, function, organization, composition and conduct. These guidelines are reviewed at least annually by the Nominating Committee and are updated periodically in response to changing regulatory requirements, evolving corporate governance practices, input from our stockholders and otherwise as circumstances warrant.

 

Our Global Code of Ethics and Business Conduct sets forth the legal and ethical standards for conducting our business to which our directors, officers and employees, including our Chief Executive Officer, our Chief Financial Officer, and the directors, officers and employees of our subsidiaries must adhere. Our Global Code of Ethics and Business Conduct covers all significant areas of professional conduct, including employment practices, conflicts of interest, unfair or unethical use of corporate opportunities, protection of confidential information and other company assets, compliance with applicable laws and regulations, political activities and other public policy matters, and proper and timely reporting of financial results. See also “Public Policy Matters.”

 

Our Guidelines on Governance and our Global Code of Ethics and Business Conduct are available in the Corporate Governance section of our website at www.ventasreit.com/investor-relations/corporate-governance. We also provide copies of our Guidelines on Governance and our Global Code of Ethics and Business Conduct, without charge, upon request to our Corporate Secretary at Ventas, Inc., 353 North Clark Street, Suite 3300, Chicago, Illinois 60654. Waivers from, and amendments to, our Global Code of Ethics and Business Conduct that apply to our Chief Executive Officer, Chief Financial Officer or persons performing similar functions will be timely posted on our website at  www.ventasreit.com. The information on our website is not a part of this Proxy Statement.

 

Transactions with Related Persons

 

Our written Policy on Transactions with Related Persons requires that any transaction involving us in which any of our directors, officers or employees (or their immediate family members) has a direct or indirect material interest be approved or ratified by the Audit Committee or the disinterested members of our Board. Our Global Code of Ethics and Business Conduct requires our directors, officers and employees to disclose in writing to our General Counsel any existing or proposed transaction in which he or she has a personal interest, or in which there is or might appear to be a conflict of interest by reason of his or her connection to another business organization. Our General Counsel reviews these matters with the Presiding Director to determine whether the transaction raises a conflict of interest that warrants review and approval by the Audit Committee or the disinterested members of the Board. In determining whether to approve or ratify a transaction, the Audit Committee or disinterested members of the Board consider all relevant facts and circumstances available to them and other factors they deem appropriate.

 

We did not have any related party transactions during 2017.

 

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Risk Management

 

Management has primary responsibility for identifying and managing our exposure to risk, subject to active oversight by our Board of the processes we establish to assess, monitor and mitigate that exposure. The Board, directly and through its committees, routinely discusses with management our significant enterprise risks and reviews the guidelines, policies and procedures we have in place to address those risks, such as our approval process for acquisitions, dispositions and other investments. At Board and committee meetings, directors engage in comprehensive analyses and dialogue regarding specific areas of risk following receipt of written materials and in-depth presentations from management and third-party experts, including an enhanced annual enterprise risk management process and presentation to the Board to better identify risks, owners and mitigants. This process enables our Board to focus on the strategic, financial, operational, legal, regulatory and other risks that are most significant to us and our business in terms of likelihood and potential impact and ensures that our enterprise risks are well understood, mitigated to the extent reasonable and consistent with the Board’s view of our risk profile and risk tolerance.

 

In addition to the overall risk oversight function administered directly by our Board, each of our Audit, Compensation, Nominating and Investment Committees exercises its own oversight related to the risks associated with the particular responsibilities of that committee:

 

ü

Our Audit Committee reviews financial, accounting and internal control risks and the mechanisms through which we assess and manage risk, in accordance with NYSE requirements, and has certain responsibilities with respect to our compliance programs, such as our Global Code of Ethics and Business Conduct, our Global Anti-Corruption Policy, our Political Contributions Policy, our Amended and Restated Securities Trading Policy and our Investigations Policy.

 

 

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Our Compensation Committee, as discussed in greater detail below, evaluates whether our compensation policies and practices, as they relate to both executive officers and employees generally, encourage excessive risk-taking.

 

 

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Our Nominating Committee focuses on risks related to corporate governance, board effectiveness and succession planning. Our Board annually adopts an emergency succession plan to facilitate the transition to both interim and long-term leadership in the unlikely event of an untimely vacancy in the position of Chief Executive Officer.

 

 

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Our Investment Committee is responsible for overseeing certain transaction-related risks, including the review of transactions in excess of certain thresholds, with existing tenants, operators, borrowers or managers, or that involve investments in non-core assets.

 

The chairs of these committees report on such matters to the full Board at each regularly scheduled Board meeting and other times as appropriate. Our Board believes that this division of responsibilities is the most effective approach for identifying and addressing risk, and through Ms. Cafaro’s combined role as Chief Executive Officer and Chairman, our Board leadership structure appropriately supports the Board’s role in risk oversight by facilitating prompt attention by the Board and its committees to the significant enterprise risks identified by management in our day-to-day operations.

 

Compensation Risk Assessment

 

As part of its risk oversight role, our Compensation Committee annually considers whether our compensation policies and practices for all employees, including our executive officers, create risks that are reasonably likely to have a material adverse effect on our company. In conducting its risk assessment in 2017, the Compensation Committee reviewed a report prepared by management regarding our existing compensation plans and programs, including our severance and change-in-control arrangements, in the context of our business risk environment. In its review, the Compensation Committee noted several design features of our compensation programs that reduce the likelihood of excessive risk-taking, including, but not limited to, the following:

 

ü

a balanced mix of cash and equity compensation with a strong emphasis on performance-based incentive awards;

 

 

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multiple performance measures selected in the context of our business strategy and often in tension with each other, for example, goals which promote FFO growth and maintaining a strong balance sheet;

 

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regular review of comparative compensation data to maintain competitive compensation levels in light of our industry, size and performance;

 

 

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incentive award opportunities that do not provide minimum guaranteed payouts, are based on a range of performance outcomes and plotted along a continuum, and have capped payouts, subject in all cases to the Compensation Committee’s and, in the case of our Chief Executive Officer, the independent Board members’ overall assessment of performance;

 

 

ü

equity compensation consisting entirely of full-value awards—pRSUs and time-based RSUs—to provide greater incentive to create and preserve long-term stockholder value;

 

 

ü

equity incentive awards granted for future performance with multi-year vesting schedules/performance periods to enhance retention;

 

 

ü

minimum stock ownership guidelines (which were increased from 5x to 6x for our Chief Executive Officer in January 2017) that align executive officers with long-term stockholder interests;

 

 

ü

our recoupment policy enables our Board to “claw back” incentive compensation in the event of a financial restatement; and

 

 

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prohibitions on engaging in derivative and other hedging transactions in our securities and restrictions on holding our securities in margin accounts or otherwise pledging our securities to secure loans.

 

Based on its evaluation, the Compensation Committee has determined, in its reasonable business judgment, that our compensation practices and policies for all employees do not create risks that are reasonably likely to have a material adverse effect on our company and instead promote behaviors that support long-term sustainability and creation of stockholder value.

 

Public Policy Matters

 

We are committed to ethical business conduct and expect our directors, officers and employees to act with integrity and to conduct themselves and our business in a way that protects our reputation for fairness and honesty. Consistent with these principles, in our Global Code of Ethics and Business Conduct, our Global Anti-Corruption Policy and our Political Contribution, Expenditure and Activity Policy, we have established the policies and practices described below with respect to political contributions and other public policy matters.

 

Political Contributions and Expenditures

 

We do not use corporate funds or resources for direct contributions to political candidates, parties or campaigns, other than occasional de minimis use of our property, such as using a conference room. Corporate resources include non-financial donations, such as the use of our property in a political campaign or our employees’ use of work time and telephones to solicit for a political cause or candidate.

 

Promotion of Company Interests

 

We do not have a political action committee. However, we may advocate a position, express a view or take other appropriate action with respect to legislative or political matters affecting our company or our interests. We may also ask our employees to make personal contact with governmental officials or to write letters to present our position on specific issues. Any such advocacy is done in compliance with applicable laws and regulations.

 

Political Activities by Company Personnel

 

We believe that our directors, officers and employees have rights and responsibilities to participate in political activities as citizens, including voting in elections, keeping informed on political matters, serving on civic bodies and contributing financially to, and participating in the campaigns of, the political candidates of their choice. Accordingly, our directors, officers and employees are not constrained from engaging in political activities, making political contributions, expressing political views or taking action on any political or legislative matter, so long as they are acting in their individual capacity, on their own time and at their own expense. Directors, officers and employees acting in their individual capacity must not give the impression that they are speaking on our behalf or representing our company in such activities.

 

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Relationships with Government Officials

 

Our directors, officers and employees may not maintain any relationship or take any action with respect to public officials that could impugn our integrity or reputation. In particular, our directors, officers and employees may not offer, promise or give anything of value, including payments, entertainment and gifts, to any government official, employee, agent or other intermediary of the United States government or any domestic or foreign government.

 

OUR EXECUTIVE OFFICERS

 

Set forth below is certain biographical information about our executive officers. Ages shown for all executive officers are as of the date of the 2018 Annual Meeting.

 

 

Name and Position

 

Age

Business Experience

Debra A. Cafaro

Chairman and Chief Executive Officer

 

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Ms. Cafaro’s biographical information is set forth in this Proxy Statement under “Proposals Requiring Your Vote—Proposal 1: Election of Directors.”

John D. Cobb

Executive Vice President and Chief Investment Officer

 

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Mr. Cobb has been our Executive Vice President, Chief Investment Officer since March 2013, after serving as our Senior Vice President, Chief Investment Officer from 2010 to March 2013. Prior to that, Mr. Cobb was a President and Chief Executive Officer of Senior Lifestyle Corporation, where he led the strategic direction of a 9,000+ unit retirement company with over 3,400 employees. Prior to that, he held various positions with GE Healthcare Financial Services, a division of General Electric Capital Corporation, which is a subsidiary of General Electric Corporation, with the last being Senior Managing Director, where he led a team focused on debt and equity investments in healthcare real estate totaling over $9 billion. Mr. Cobb has served as a member of the Board of Directors of the National Investment Center for the Seniors Housing & Care Industry. He is currently a member of the Executive Board of the American Seniors Housing Association.

 

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Todd W. Lillibridge

Executive Vice President, Medical Property Operations; President and Chief Executive Officer, Lillibridge Healthcare Services, Inc.

 

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Mr. Lillibridge has been our Executive Vice President, Medical Property Operations since July 2010. Mr. Lillibridge also serves as President and Chief Executive Officer of our subsidiary, Lillibridge Healthcare Services, Inc. (“Lillibridge”), where he is responsible for the strategic focus, vision and overall leadership of our MOB operations. Prior to joining Lillibridge’s predecessor in 1982, and subsequently establishing Lillibridge & Company, Mr. Lillibridge was employed by Baird & Warner, Inc. of Chicago, Illinois, serving in the real estate finance group and the development division. He is a member of the Economic Club of Chicago and the World Presidents’ Organization of Chicago. Mr. Lillibridge is a member of the board of directors of DIRTT Environmental Solutions, Ltd., Ardent Health Services, member of the Rush University Medical Center Facilities Committee and a member of Pacific Medical Buildings Healthcare Real Estate Board.

Robert F. Probst

Executive Vice President and Chief Financial Officer

 

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Mr. Probst has been our Executive Vice President and Chief Financial Officer since October 2014 and previously served as our Acting Chief Accounting Officer from October 2014 to September 2015. Prior to joining us, Mr. Probst served as senior vice president and chief financial officer of Beam Inc., a global spirits distributor, from its inception as an independent, S&P 500 company in October 2011 to its sale to Suntory Holdings Limited in May 2014.  Prior to that, he served as senior vice president and chief financial officer of Beam Global Spirits & Wine, Inc., playing a key role in establishing the former unit of Fortune Brands, Inc. as a standalone publicly-traded company. Mr. Probst serves on the boards of the Chicago Botanic Garden and Camp Kesem, as well as the advisory board of the Duke University Financial Economics program.

T. Richard Riney

Executive Vice President, Chief Administrative Officer, General Counsel and Ethics and Compliance Officer

 

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Mr. Riney has been our Executive Vice President and General Counsel since 1998, was named our Chief Administrative Officer in 2007, has served as our Corporate Secretary since August 2015 and previously served as our Corporate Secretary from 1998 to 2012. Mr. Riney also serves as our Ethics and Compliance Officer. From 1996 to 1998, he served as Transactions Counsel for our predecessor, Vencor, Inc. Prior to that, Mr. Riney practiced law with the law firm of Hirn, Reed & Harper, where his areas of concentration were real estate and corporate finance. Mr. Riney serves on the Centre College Board of Trustees. He is admitted to the Bar in Kentucky and is a member of the National Association of Real Estate Investment Trusts (“NAREIT”).

 

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EXECUTIVE COMPENSATION

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis and, based on such review and discussion, has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the 2017 Form 10-K.

 

COMPENSATION COMMITTEE

 

Jay M. Gellert, Chair

Richard I. Gilchrist

Roxanne M. Martino

James D. Shelton

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis (“CD&A”) provides a detailed description of our executive compensation philosophy, objectives and programs, the compensation decisions made under those programs and the factors considered by our Compensation Board Members in making those decisions. The CD&A focuses on the compensation of our Named Executive Officers for 2017, who were:

 

Name

Title

Debra A. Cafaro

Chairman and Chief Executive Officer

 

Robert F. Probst

Executive Vice President and Chief Financial Officer

 

Todd W. Lillibridge

Executive Vice President, Medical Property Operations; President and Chief Executive Officer, Lillibridge Healthcare Services, Inc.

 

T. Richard Riney

Executive Vice President, Chief Administrative Officer, General Counsel and Ethics and Compliance Officer

 

John D. Cobb

Executive Vice President and Chief Investment Officer

 

 

As in previous years, we awarded compensation to our Named Executive Officers for 2017 based on policies that closely link compensation to performance. These policies, in structured combination, generate rewards for achievement of high-level company and individual performance and discourage excessive short-term risk taking. This balance is essential to align management with the long-term interests of our stockholders.

 

Executive Summary

 

Our executive compensation programs are designed to attract, retain and motivate talented executives, to reward them for the achievement of pre-established company objectives combined with tailored individual goals consistent with our strategic plan and to link compensation to company performance. We compensate executives primarily through base salary, annual cash incentive compensation and long-term equity incentive compensation. Our executive compensation philosophy emphasizes performance-based incentive compensation over fixed cash compensation, so that the vast majority of total direct compensation is variable and not guaranteed. A significant percentage of incentive compensation is in the form of equity awards that may be earned, if at all, based on future performance over a period of three years. This structure appropriately focuses our executive officers on the creation of long-term value and encourages prudent risk evaluation.

 

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2017 Performance

 

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Returns to Stockholders.  Our long history of delivering sustained, superior returns to stockholders continued in 2017:

 

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Though below our historical average, our 0.7% TSR in 2017 outperformed the three large-cap diversified healthcare REITs in 2017 and our TSR ranked first in this group for the one-, three-, five- and 10-year periods ended December 31, 2017 (as well as since 2000), demonstrating short- and long-term outperformance during varied economic cycles.

 

 

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For the period from January 1, 2000 through December 31, 2017 (the 18 full fiscal years of our Chief Executive Officer’s tenure), we delivered compound annual TSR of 24%, dramatically outperforming our peers, the S&P 500 index and the MSCI REIT Index.

 

 

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We increased our dividend by 5% in 2017.

 

Strategic, Financial and Operating Performance.  We delivered exceptional strategic, financial and operating performance in 2017:

 

ü

Revenue, NOI, Same-Store Cash NOI and Net Cash from Operating Activities Growth:

 

 

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Achieved record $3.6 billion revenue and $2.1 billion NOI, delivering 2.5% same-store cash NOI growth, at the high end of our initial guidance, and 5% growth in net cash provided by operating activities, up to a record number;

 

 

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Effective Balance Sheet Management and Efficient Capital Markets Execution:

 

 

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Continued strengthening of our balance sheet by maintaining our excellent leverage and improving our liquidity by $1.4 billion, ending the year at 5.7x net debt to adjusted pro forma EBITDA and 4.6x fixed charge coverage;

 

 

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Completion of $4.5 billion in efficient long-term capital raises, including more than $1 billion in long-term debt at attractive rates, an upsized and extended revolving credit facility with $3 billion in borrowing capacity at improved pricing and a $400 million revolving construction credit facility to facilitate funding our broadening development pipeline;

 

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Value-Creating Investments:

 

 

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Made and committed to $1.8 billion of attractive, value-creating investments, including funding (i) the continued growth in our university-based life sciences and innovation business with significant developments and acquisitions (grown by 37% since inception with a strong pipeline of opportunities), (ii) Ardent Health Services’ successful acquisition of LHP Hospital Group and (iii) selective SHOP and MOB development and redevelopment deals;

 

 

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Profitable Dispositions:

 

 

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Accelerated our strategic and highly profitable disposition program, closing greater than $900 million in profitable dispositions and receipt of timely loan repayments in 2017 and recognizing greater than $700 million in gains, including substantially exiting the skilled nursing business through disposal of more than $700 million in skilled nursing assets;

 

 

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Investor Relations and Customer Focus:

 

 

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Expanded investor relations engagement through non-deal roadshows, operator presentations, property tours and targeted outreach highlighting areas of increased focus;

 

 

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Successful negotiation of collaborative and mutually beneficial arrangements with our leading operators, such as the successful recapitalization of Atria Senior Living;

 

 

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Completion of several customer-focused initiatives, including support for senior living employee assistance programs, hurricane assistance, procurement referrals and working with our operators on growth and cost savings initiatives;

 

 

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Sustainability, Values, Reputation and Industry Leadership:

 

 

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We were named among Fortune’s “World’s Most Admired Companies” and received numerous prestigious awards in 2017 and early 2018 in recognition of our philanthropy, reputation, commitment to superior governance and results, industry leaders, exemplary stewardship and world-class team.

 

 

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Ownership of an industry-leading portfolio of 69 ENERGY STAR Certified buildings and 37 LEED Certified buildings, which includes over $500 million of investment in 8 active developments pursuing LEED certification and receipt of a broad range of awards and recognitions during the year in REIT space, healthcare industry and among global corporations, including inclusion in the Dow Jones Sustainability Index (attaining top quartile results across ESG metrics among all North American Real Estate companies), achieving the #1 rank among public Healthcare REITs in the 2017 GRESB Real Estate Assessment on Sustainability and representation in the FTSE4GOOD Sustainability Index Series and MSCI Global Sustainability Index;

 

 

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We are on track to meet our 10-year targets to reduce our environmental impact from a 2013 baseline, which includes 10% reductions in energy usage and greenhouse gas emissions, 5% reduction in water usage and 4% reduction in landfill waste;

 

 

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Identified as a “Winning Company” in the 2020 Women on Boards Gender Diversity Index and a “Corporate Champion” by the Women’s Forum of New York for having an industry-leading 30% female Board of Directors;

 

 

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Ventas Charitable Foundation contributed almost $1 million to 80 organizations in 2017, including our ongoing 5-year, $1 million marquee partnership with the Greater Chicago Food Depository to alleviate senior hunger; and

 

 

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Greater than 90 percent of requests have been met and in excess of $500,000 given to an Employee Charitable Fund, which provides grants to organizations that are directly nominated by our employees.

 

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The 2017 compensation decisions made by our Compensation Board Members reflected our level of achievement overall with respect to the pre-established measures and goals under our annual cash and long-term equity incentive plans and the individual performance and contributions of our Named Executive Officers to our strong financial and operating performance during the year.

 

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2017 Executive Compensation

 

In 2017, our compensation decisions again reflected strong alignment between pay and performance. In determining the incentive compensation paid to our Named Executive Officers for 2017, our Compensation Board Members rigorously evaluated company and individual performance relative to the pre-established measures and goals under our annual cash and long-term equity incentive plans. Our TSR for the one-, three, five- and ten-year periods ended December 31, 2017 (as well as since 2000) has placed us first among the three large-cap diversified healthcare REITs for these periods, demonstrating short- and long-term outperformance during varied economic cycles. In addition, we were the only large-cap diversified healthcare REIT to achieve year-over-year normalized FFO per share growth in 2017, finishing at $4.16 per share.

 

We delivered excellent strategic, financial and operating performance, including significant expansion of our university-based life sciences and innovation business, accelerated dispositions of greater than $900 million in assets at premium pricing, 2.5% same-store cash NOI growth, 5% dividend growth in 2017, improved financial strength as illustrated by maintaining our excellent leverage and improving our liquidity by $1.4 billion, ending the year at 5.7x net debt to adjusted pro forma EBITDA and 4.6x fixed charge coverage, capital markets excellence, collaboration with our operators to build or recapitalize their businesses and earning numerous significant ESG achievements and awards.

 

2017 Base Salary.  Following a review of compensation data for peers with substantially similar roles and responsibilities (as described below under “Benchmarking and Comparable Companies”), each of our Named Executive Officers (other than Ms. Cafaro) received an increase in base salary for 2017 to remain near the market median.

 

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2017 Annual Cash Incentive Awards.  Cash incentive awards granted to our Named Executive Officers for 2017 performance were earned between the target and maximum levels, ranging from 107% to 149% of their respective target award opportunities, based on our performance with respect to pre-established company financial measures, as further described below in the “Annual Cash Incentive Compensation — Opportunities, Measures and Actual Performance” section.

 

2017 Long-Term Equity Incentive Awards.   After careful consideration of constructive feedback from our investors, we made significant and responsive modifications to our executive compensation program in January 2017, including the adoption of a forward-looking long-term equity incentive plan in replacement of our backward-looking plan. This new program responds directly to the feedback provided by investors in our stockholder engagement process, further emphasizes our commitment to aligning pay and performance, retaining and motivating talented executives and rewarding superior performance without incentivizing undue risk-taking by (i) designing equity awards to be earned at a higher or lower level based on future performance rather than being granted following the satisfaction of specified performance goals, (ii) eliminating the discretionary component from our long-term equity incentive plan, (iii) elongating equity vesting periods, (iv) increasing the proportion of long-term equity incentive awards that may be earned based on relative TSR metrics and (v) eliminating stock options. Full details of our new forward-looking long-term equity incentive plan are further described below in the “Long-Term Equity Incentive Compensation — Opportunities, Measures and Performance” section.

 

Pay-for-Performance Alignment

 

The graph below illustrates our long-term pay-for-performance alignment by comparing our Chief Executive Officer’s total direct compensation to our TSR performance (indexed to a 2012 base year) for each of the past five years.

 

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“Total Direct Compensation” includes, for the applicable year, base salary, actual annual cash incentive awards earned, the value of long-term equity incentive awards earned or granted (as applicable) and “All Other Compensation” as reported in the Summary Compensation Table. This graph differs from compensation reported in the 2017 Summary Compensation Table in the following respects:

 

ü

For 2012-2016, the period during which our backward-looking plan was in effect, the graph aligns the value of long-term equity incentive awards with the performance year for which they were earned, rather than the year in which they were granted (e.g., long-term equity incentive awards granted in January 2017 for 2016 performance are shown in the graph above as 2016 compensation), consistent with the manner in which our Compensation Board Members evaluated compensation and pay-for-performance under the previous backward-looking plan for our Named Executive Officers.

 

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ü

For 2017, the first year our new forward-looking long-term equity incentive plan was in effect, we report the grant date fair value (approximating target level of performance) of the pRSUs granted in 2017 that may be earned, if at all, based on performance relative to performance goals measured from January 1, 2017 through December 31, 2019. Actual payout will occur in 2020 and will range from 0% - 220% of the target value. The graph also includes the grant date fair value of the regular annual time-based RSUs that may vest in three equal annual installments following the grant date, generally subject to continued employment.

 

 

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The 2017 figure excludes time-based one-time RSU transition awards received by certain of our Named Executive Officers because they are one-time in nature and not a continuing feature of the long-term incentive plan. These one-time transition awards were designed to partially mitigate the impact of a reduction in the realized pay for our Named Executive Officers in 2018 and 2019 resulting from the transition from a backward-looking long-term equity incentive plan to a forward-looking plan.

 

Recurring CEO compensation is substantially lower than reflected in the 2017 Summary Compensation Table because SEC rules require us to report all equity grants made in 2017, including the final 2016 “backward-looking” equity grant and the non-recurring transition awards. For 2017, target CEO total direct compensation is $11.3 million on a recurring, normalized basis.

 

 

Compensation Policies and Practices—Good Governance

 

Consistent with our commitment to strong corporate governance and responsiveness to our stockholders, in 2017 our Board maintained the following compensation policies and practices to drive performance and serve our stockholders’ long-term interests:

 

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Balance: The structure of our executive compensation program includes a balanced mix of cash and equity compensation with a strong emphasis on performance-based incentive awards that contain a blend of metrics promoting responsible growth and risk management.

 

 

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Capped Opportunity: Our Named Executive Officers’ incentive award opportunities are capped, and the value of their awards is determined based on the Compensation Committee’s or the independent Board members’ assessment of performance with respect to multiple performance measures, including relative TSR, that promote stockholder value.

 

 

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Retention: The long-term equity incentive awards granted to our Named Executive Officers measure future performance over a three-year period to enhance retention and alignment with long-term stockholder value.

 

 

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Peer Companies: The competitiveness of our executive compensation program is assessed by comparison to the median of a group of peer companies that are comparable to us in terms of enterprise value, market capitalization and total assets.

 

 

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Independence: Our Compensation Committee is comprised solely of independent directors and annually engages an independent compensation consultant to advise on matters related to our executive compensation program.

 

 

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Change of Control: Our employment agreements and all forward-looking equity award agreements with executive officers do not provide single-trigger change of control benefits, and we prohibit new tax gross-up arrangements under our anti-tax gross-up policy. Only one of our Named Executive Officers has a legacy agreement with a tax gross-up provision.

 

 

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Stock Ownership Guidelines: We maintain meaningful stock ownership guidelines for our executive officers (which were increased in 2017 from 5x to 6x base salary for our CEO) and non-employee directors that promote a long-term stockholder perspective.

 

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Risk Review: Our Compensation Committee annually reviews and assesses the potential risks of our compensation policies and practices for all employees.

 

 

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Clawback Policy: Our recoupment policy enables our Board to “claw back” incentive compensation in the event of a financial restatement.

 

 

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Limited Perquisites: Our executive officers receive limited perquisites and other personal benefits that are not otherwise generally available to all of our employees.

 

 

ü

No Pledging or Hedging: Our Amended and Restated Securities Trading Policy (“Securities Trading Policy”) prohibits our executive officers and directors from engaging in derivative and other hedging transactions in our securities and restricts our executive officers and directors from holding our securities in margin accounts or otherwise pledging our securities to secure loans without the prior approval of the Audit Committee (no executive officer or director pledged or held our securities in margin accounts at any time during 2017).

 

2017 Responsive Redesign of our Long-Term Equity Incentive Plan

 

In response to our 2016 advisory vote on our Named Executive Officers’ compensation and our Compensation Committee Chairman’s conversations with a significant number of our largest investors, we carefully considered constructive feedback on our executive compensation program and corporate governance provided to us by our largest stockholders and in January 2017, we redesigned our long-term incentive compensation program, beginning with the 2017-2019 performance period.

 

We gained valuable insight from engaging with our stockholders on a consistent basis before, during and after the redesign process. We conducted broad investor outreach programs on four separate occasions during this process:

 

 

Outreach
Timing

 

Company Participants

Investor Contact

Topics

Late 2015/ Early 2016

-        Compensation Committee Chair

-        Independent Compensation Committee Consultant

-        Members of our Legal Team

27 Largest Stockholders (holding ~60% of our shares)

-        Executive compensation program

-        Solicit feedback on our executive compensation program and corporate governance practices

 

Mid 2016

-        Compensation Committee Chair

-        Independent Compensation Committee Consultant

-        Members of our Legal Team

30 Largest Stockholders (holding ~60% of our shares)

-        Potential executive compensation program design changes

-        Solicit feedback on our executive compensation program design and corporate governance practices

 

Early 2017

-        Compensation Committee Chair

-        Members of our Legal Team

32 Largest Stockholders (holding ~60% of our shares)

-        Executive compensation program design changes

-        Corporate governance improvements

-        Solicit feedback on our executive compensation program and corporate governance practices

 

Late 2017/ Early 2018

-        Compensation Committee Chair

-        Members of our Legal Team

40 Largest Stockholders (holding ~66% of our shares)

-        Review of improved executive compensation program and corporate governance enhancements

-        Solicit feedback on our executive compensation program and corporate governance practices

 

 

Based on these discussions, we learned that our stockholders:

 

ü

generally approve of the overall structure of our executive compensation program and diversity of goals, particularly our use of balanced metrics of growth, risk management and capital structure to mitigate risk and promote responsible, sustained long-term growth;

 

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ü

generally approve of our implementation of the executive compensation program, the factors considered and the decisions made under the program;

 

 

ü

generally approve of our proxy disclosures regarding our executive compensation program and corporate governance best practices;

 

 

ü

generally support our pay-for-performance alignment; and

 

 

ü

generally endorse our corporate governance practices.

 

We also received constructive feedback from our investors. After careful consideration of this feedback, we made significant and responsive modifications to our executive compensation program, beginning with the 2017 compensation cycle.

 

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The key features of the new program are consistent with the feedback we received from our largest stockholders and are described in further detail below in the section entitled, “2017 Forward-Looking Awards: Responsive Redesign of Long-Term Incentive Compensation.”

 

We believe this redesigned program enhances alignment of pay and performance, is responsive to investor feedback and provides simpler, clear objectives, while achieving our goals of attracting, retaining and motivating talented executives and rewarding superior performance in the context of our business risk environment.

 

Following implementation of these changes, which were first reported in our 2017 Proxy Statement, we received support from over 95% of our stockholders with respect to our 2017 advisory vote on our Named Executive Officers’ compensation. Accordingly, we have not made further changes to the structure of our executive compensation program as a direct result of the outcome of our 2017 advisory vote on our Named Executive Officers’ compensation.

 

Objectives of Our Compensation Program

 

We recognize that effective compensation strategies are critical to recruiting, incentivizing and retaining key

 

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employees who contribute to our long-term success and thereby create value for our stockholders. Accordingly, our compensation program is designed to achieve the following primary objectives:

 

ü

attract, retain and motivate talented executives;

 

 

ü

reward performance that meets or exceeds pre-established company and tailored individual goals consistent with our strategic plan, while maintaining alignment with stockholders;

 

 

ü

provide balanced incentives that discourage excessive risk-taking;

 

 

ü

retain sufficient flexibility to permit our executive officers to manage risk and adjust appropriately to meet rapidly changing market and business conditions;

 

 

ü

evaluate performance by balancing consideration of those measures that management can directly and significantly influence with market forces that management cannot control (such as monetary policy and interest rate expectations), but that impact stockholder value;

 

 

ü

encourage executives to become and remain long-term stockholders of our company; and

 

 

ü

maintain compensation and corporate governance practices that support our goal to deliver sustained, superior returns to stockholders.

 

We align the interests of our executive officers and stockholders by maintaining a performance- and achievement-oriented environment that provides executives with the opportunity to earn market-competitive levels of cash and equity compensation for strong performance measured against key strategic, financial and operating goals that create long-term stockholder value.

 

Benchmarking and Comparable Companies

 

For 2017 benchmarking purposes, PM provided our Compensation Board Members with comparative market data on compensation practices and programs based on its analysis of a group of peer companies (the “Comparable Companies”) and provided guidance on compensation trends and best practices. Using this market data, PM advised the Compensation Board Members and made recommendations with respect to program design and setting base salaries and incentive award opportunity levels for our Named Executive Officers for 2017.

 

In determining 2017 compensation targets for our Named Executive Officers, our Compensation Committee, in consultation with PM, considered the competitive positioning of our executive compensation levels relative to compensation data for the Comparable Companies with respect to the following components of pay: base salary; total annual compensation (base salary plus annual incentive awards); long-term equity incentives (annualized expected value of long-term equity incentive awards) and total direct compensation (base salary plus annual incentive awards and annualized expected value of long-term equity incentive awards). Consistent with our compensation philosophy, our Compensation Committee reviewed each element of pay in the context of the Comparable Companies, but targeted approximately the median of the Comparable Companies on an overall, total direct compensation basis, subject to adjustment based on the unique skills, expertise and individual contributions of each Named Executive Officer. Our 2017 executive compensation program was designed to deliver compensation levels above or below these targets if performance exceeded or failed to achieve the goals established for the annual cash and long-term equity incentive awards. We believe this methodology is appropriate for our operating style and reflects the need to attract, retain and stretch top executive talent.

 

The group of Comparable Companies consists of large-cap REITs in our healthcare sector and different sectors (such as office, retail and lodging), but otherwise similar to us in terms of FFO and generally falling within a range of 40% to 250% of our enterprise value, market capitalization and total assets. Because these companies’ values may rise or fall based on underlying trends that are different from those affecting healthcare real estate, our total returns may vary significantly from theirs. Our Compensation Committee annually reviews the Comparable Companies to ensure that their size and operations remain comparable to ours and may change the composition of the group from time to time as appropriate. In December 2016, the Compensation Committee and PM examined the 2016 peer group and approved changes to the 15 Comparable Companies to be used for 2017 compensation purposes. The Compensation Committee removed Host Hotels & Resorts, Inc. and Kimco Realty Corporation due to size and structure misalignment with us and added Crown Castle International Corp. and Equinix, Inc. The Compensation Committee believes this revised group of

 

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Comparable Companies provides a more accurate representation of our peer companies based on the size and complexity of the constituent companies (including participation in joint ventures) and provides a more accurate pool from which we compete for executive talent and stockholder investment.

 

2017 Comparable Companies

American Tower Corp.

AvalonBay Communities, Inc.

Boston Properties, Inc.

Crown Castle International Corp.

Equinix, Inc.

Equity Residential

General Growth Properties, Inc.

HCP, Inc.

Prologis, Inc.

Public Storage, Inc.

Simon Property Group, Inc.

SL Green Realty Group, Inc.

The Macerich Company

Vornado Realty Trust, Inc.

Welltower, Inc.

 

 

2018 Comparable Companies

 

In August 2017, the Compensation Committee and SBCG examined the 2017 peer group and approved changes to the 15 Comparable Companies identified above to be used for 2018 compensation purposes. Based on SBCG’s advice, the Compensation Committee refined its approach to setting the peer group by simplifying the criteria to generally include publicly-traded REITs with an enterprise value over $20 billion and having total assets of over $10 billion, irrespective of direct business fit. This change resulted in Digital Realty Trust, Inc., Realty Income Corp. and Weyerhaeuser Co. being added to the existing 15 company peer group set.

 

The Compensation Committee believes this updated approach will result in a more predictable and consistent peer group consisting of companies within our same industry, while maintaining focus on companies comparable to us in terms of size and talent.

 

Compensation Mix

 

Our executive compensation philosophy promotes a compensation mix that emphasizes variable pay and long-term stockholder value. We believe that an emphasis on incentive compensation creates greater alignment with the interests of our stockholders, ensures that our business strategy is executed by decision-makers in a manner that focuses on the creation of long-term value rather than only short-term results, and encourages prudent evaluation of risks. Accordingly, our compensation structure is designed such that a significant portion of Named Executive Officers’ total direct compensation is in the form of equity awards. Under our new forward-looking long-term equity incentive plan, equity awards will be earned and vest based on future performance over a period of three years from the grant date.

 

The following charts illustrate each Named Executive Officer’s base salary, target annual cash incentive compensation and target long-term equity incentive compensation as a percentage of his or her target total direct compensation for 2017. Ms. Cafaro’s target total direct compensation reflects a heavier weight on long-term equity incentive compensation because our Compensation Board Members believe that, due to her leadership role as our Chief Executive Officer, her compensation structure should reflect even greater alignment with our stockholders.

 

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Elements of Our Compensation Program

 

For 2017, the compensation provided to our executive officers consisted of the same elements generally available to our non-executive officers: base salary; annual cash incentive compensation; long-term equity incentive compensation; and other perquisites and benefits.

 

Base Salary

 

The base salary payable to each Named Executive Officer provides a fixed component of compensation that reflects the executive’s position and responsibilities. Base salary is generally targeted to approximate the competitive market median of the Comparable Companies, but may deviate from this target based on an individual’s sustained performance, contributions, leadership, experience, expertise and specific roles within our company as compared to the benchmark data. Our Compensation Committee reviews base salaries annually and may make adjustments to better match competitive market levels or to recognize an executive’s professional growth and development or increased responsibilities. The Compensation Committee also considers the success of each executive officer in developing and executing our strategic plans, exercising leadership and creating stockholder value.

 

In determining 2017 base salaries for our Named Executive Officers, our Compensation Committee analyzed base salary information of the Comparable Companies contained in a report prepared by PM. Although the Compensation Committee periodically considers information from REIT industry and other compensation surveys, it places primary emphasis on publicly-available data from the Comparable Companies’ proxy statements and other SEC filings, which is more detailed by individual executive officer position than the data typically provided in compensation surveys.

 

For 2017, as part of an overall strategy to bring our Named Executive Officers’ total direct compensation opportunities approximately to the median of our peer group, our Compensation Board Members approved the following base salary levels for our Named Executive Officers:

 

 

Base Salary

Year-Over-Year

 

 

 

 

 

2016

2017

% Change

 

 

 

 

Debra A. Cafaro

$ 1,075,000

$ 1,075,000

0%

 

 

 

 

Robert F. Probst

592,000

615,000

3.9%

 

 

 

 

Todd W. Lillibridge

494,000

510,000

3.2%

 

 

 

 

T. Richard Riney

541,000

560,000

3.5%

 

 

 

 

John D. Cobb

541,000

605,000

11.8%

 

 

 

 

 

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At these levels, the Compensation Board Members considered each Named Executive Officer’s 2017 base salary to continue to be within the competitive range given each individual’s unique skills, expertise and individual contributions. Mr. Cobb received a larger increase based on his outstanding performance with respect to critical strategic transactions and an increase in his aggregate responsibilities within the Company, and as a result of a change in his compensation benchmarking position-matching to more accurately reflect his role within the Company. For the second consecutive year, the Compensation Board Members did not adjust Ms. Cafaro’s base salary in 2017.

 

For 2018, our Compensation Board Members approved the following base salary increases for certain of our Named Executive Officers:

 

 

Base Salary

Year-Over-Year

 

 

 

 

 

2017

2018

% Change

 

 

 

 

Debra A. Cafaro

$ 1,075,000

$ 1,075,000

0%

 

 

 

 

Robert F. Probst

615,000

627,300

2.0%

 

 

 

 

Todd W. Lillibridge

510,000

510,000

0%

 

 

 

 

T. Richard Riney

560,000

571,200

2.0%

 

 

 

 

John D. Cobb

605,000

626,175

3.5%

 

 

 

 

 

At these levels, the Compensation Board Members considered each Named Executive Officer’s base salary to be within the competitive range given each individual’s unique skills, expertise and individual contributions. For the third consecutive year, the Compensation Board Members did not adjust Ms. Cafaro’s base salary in 2018, meaning that her base salary has remained flat since 2015.

 

Annual Cash Incentive Compensation — Opportunities, Measures and Actual Performance

 

We provide our Named Executive Officers with an annual opportunity to earn cash incentive awards for the achievement of pre-established company financial goals and tailored individual objectives. At the beginning of each performance year, our Compensation Board Members approve specific performance measures, goals and weightings and an award opportunity range (expressed as multiples of base salary and corresponding to threshold, target and maximum levels of performance) for each Named Executive Officer.

 

Cash incentive awards granted to our Named Executive Officers for 2017 performance were earned between the target and maximum levels, ranging from 107% to 149% of their respective target award opportunities. We achieved between target and maximum performance for normalized FFO, exceeded maximum performance with respect to fixed charge coverage and exceeded maximum performance with respect to liquidity coverage ratio (each goal as further described below) that together accounted for 65% of the award opportunity (or 35% in the case of Mr. Lillibridge). Performance with respect to MOB operations financial metrics, which accounted for 40% of Mr. Lillibridge’s 2017 annual cash incentive award opportunity, finished between threshold and target for this portion of his award. With respect to the tailored individual objectives that accounted for the remaining 35% of the award opportunity (or 25% in the case of Mr. Lillibridge), our Compensation Board Members determined that each Named Executive Officer achieved above target performance, in recognition of each Named Executive Officers’ achievement of his or her tailored individual goals and contribution to our success.

 

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2017 Award Opportunities.  In January 2017, our Compensation Board Members approved the 2017 annual cash incentive award opportunities for our Named Executive Officers. The 2017 annual cash incentive award opportunities for all of our Named Executive Officers remained unchanged from 2016 opportunities.

 

Ms. Cafaro’s annual cash incentive opportunity structure has greater leverage and a wider range of outcomes than the structures of our other Named Executive Officers in support of the view that the Chief Executive Officer’s compensation should be more strongly aligned with stockholders than our other executive officers.

 

Performance Measures and Results.  Below is a summary of the annual cash incentive plan measures and goals approved by our Compensation Board Members, the relative weighting for each performance measure, the reasons why we consider each performance measure to be an important component of our pay-for-performance philosophy, and our results with respect to those measures. Consistent with our compensation philosophy, the 2017 annual cash incentive plan measures and goals were determined taking into consideration our strategic plan and were designed to be challenging, but balanced and also discourage excessive risk-taking. Although these performance measures focus on shorter-term results, they have a counterbalancing effect on each other. They incentivize our Named Executive Officers to effectively meet rapidly changing market and business conditions and make appropriate business adjustments that benefit the long-term interests of our stockholders.

 

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In the first quarter of the year following the performance year, each Named Executive Officer’s performance is carefully evaluated with respect to the applicable pre-established measures and goals to determine the earned value of the individual’s annual cash incentive award, if any, within the established award opportunity range.

 

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Normalized FFO Per Share

Normalized FFO per share, excluding non-cash items,

for the year ended December 31, 2017

 

Weighting: 40% (22% for Mr. Lillibridge)

 

Goals:

 

 

Threshold

 

 

$4.10

 

 

Target

 

 

$4.15

 

 

Maximum

 

 

$4.20

 

 

Why does this measure matter?  FFO is a common measure of operating performance for REITs because it excludes, among other items, the effect of gains and losses from real estate sales and real estate depreciation and amortization to allow investors, analysts and management to compare operating performance among companies and across time periods on a consistent basis. A REIT’s FFO can have a significant impact on the trading price of its common stock and, therefore, its TSR. Normalized FFO is the main measure the Company uses in its publicly-reported earnings and is defined as FFO excluding certain items, such as non-cash income tax items and deal costs/expenses. The maximum performance goal represented a 2% increase over 2016 normalized FFO per share, which the Committee believes is appropriately challenging in the current economic and interest rate environment for healthcare REITs. In setting the threshold, target and maximum performance levels, the Committee considers the Company’s business model, growth rates of peers, size, and the asset classes in which it operates, as well as the desired tradeoffs between growth in FFO per share and maintaining a low risk profile through sound investments.

 

Result:  Between Target and Maximum Performance. Our year-over-year normalized FFO per diluted share was $4.16. The variance between our actual results and our pre-established goals was largely due to actions led by our Named Executive Officers, principally our accretive investments and improved property performance, partially offset by the impact of dispositions and loan repayments, higher rates on refinanced debt and lower profits and fees from beneficial transactions. We were the only large-cap diversified healthcare REIT to achieve year-over-year FFO per share growth in 2017.

 

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Fixed Charge Coverage (Year End)

Fixed charge coverage ratio as of December 31, 2017

 

Weighting: 10% (5% for Mr. Lillibridge)

 

Goals:

 

 

Threshold

 

 

3.50x

 

 

Target

 

 

3.75x

 

 

Maximum

 

 

4.00x

 

 

Why does this measure matter?  Fixed charge coverage ratio reflects the strength of our balance sheet and our ability to generate sufficient cash flow to meet our debt obligations and continue to pay or increase our dividend. A strong ratio of EBITDA-generation compared to fixed payment obligations—one element of our comprehensive risk management program—is especially important for REITs, which are dividend-paying and required to distribute to stockholders a substantial portion of their annual taxable net income. By maintaining a high fixed charge coverage ratio, we are able to preserve and enhance stockholder value. Even if our EBITDA declines in times of economic cycles or other impacts to our cash flows, high fixed charge coverage of cash flow to fixed obligations should enable us to generate sufficient free cash flow to meet our fixed obligations such as principal and interest payments and at the same time be able to maintain and even increase our dividend, which is an important component of our value proposition (total return) to stockholders. Strong fixed charge coverage also enables us to maintain a strong BBB or better credit rating, which enhances our cost of capital (a critical component of our continued investment strategy) and provides us with more consistent access to the debt capital markets even during periods of capital market disruption. We take a balanced approach to fixed charge coverage by maintaining a strong coverage ratio, while avoiding suboptimal capitalization from an unnecessarily high ratio.

 

Result:  Exceeded Maximum Performance Goal. As of December 31, 2017, our fixed charge coverage ratio was 4.6x. The variance between our actual results and our pre-established goals was largely due to actions led by our Named Executive Officers, including efficient capital markets execution, effective management of sources and uses, hedging strategies and disciplined and consistent balance sheet management.

 

 

 

 

Liquidity Coverage Ratio (Year End)

Liquidity coverage ratio as of December 31, 2017

 

Weighting: 15% (8% for Mr. Lillibridge)

 

Goals:

 

 

Threshold

 

 

1.25x

 

 

Target

 

 

1.50x

 

 

Maximum

 

 

1.75x

 

 

Why does this measure matter?  Liquidity coverage ratio was added as a metric for 2017 to further incentivize the Company to increase its sources of capital, to position the Company to succeed in a period of greater market uncertainty and volatility and to promote continued responsible FFO growth with an eye towards risk mitigation. More liquidity protects stockholder value and enables opportunistic value-creating activities. This metric is also consistent with how credit rating agencies evaluate our business and therefore illustrates our continued commitment to focus on creditworthiness.

 

Result:  Exceeded Maximum Performance Goal. As of December 31, 2017, our liquidity coverage ratio was 2.0x. The variance between our actual results and our pre-established goals was largely due to actions led by our Named

 

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Executive Officers, including innovative structuring of debt facilities, as well as generation of sources that exceeded uses. Because market conditions were favorable in 2017, the Company secured additional liquidity sources and therefore exceeded the maximum goal.

 

 

 

 

Lillibridge Financial Performance (Year End)

Same-Store Cash NOI, Same-Store Occupancy and Bad Debt for the year ended December 31, 2017

 

Weighting: 40% (for Mr. Lillibridge only)

 

Goals:*

 

 

 

 

 

Measure

 

Achievement

 

Goal

 

Weighting

 

 

 

 

 

 

Same-Store MOB Cash NOI

(based on a specific definition and pool of assets)

Threshold

 

1.6%

 

50%

(20% of overall)

Target

 

2.35%

 

Maximum

 

3.1%

 

Same-Store Occupancy

(based on a specific pool of assets)

Threshold

 

91.7%

 

35%

(14% of overall)

Target

 

92.2%

 

Maximum

92.7%

 

Bad Debt

Threshold

 

$3.25 million

 

15%

(6% of overall)

Target

 

$2.5 million

 

Maximum

$1.75 million

 

 

* These goals were established for certain pools of assets and used certain definitions in place on January 1, 2017; they may differ from same-store pools of assets based on asset sales and intended sales, and/or market definitions.

 

Why do these measures matter?  Same-Store MOB Cash NOI and Same-Store Occupancy are important measures of the MOB business’s ability to generate internal organic growth and maximize the productivity of these assets. Bad Debt is an important measure of cash flow and credit quality in the tenant base.

 

Result:  Between Threshold and Target on a Combined Basis. As of December 31, 2017, Lillibridge achieved (i) same-store cash NOI of 2.0%, which was between the threshold and target levels, (ii) same-store occupancy of 91.8%, which was slightly above the threshold level and (iii) bad debt of $2.95 million, which was between the threshold and target levels.

 

 

 

 

Individual Performance

Individual performance under management

objectives established for each Named Executive Officer

 

Weighting: 35% (25% for Mr. Lillibridge)

 

Goals:

 

Individual objectives relate to areas of special emphasis within the executive’s particular responsibilities and duties, such as achieving certain cost, NOI or revenue targets, or achieving other extraordinary or unusual accomplishments or contributions, in light of our business risk environment.

 

Why does this measure matter?  A review of each Named Executive Officer’s annual accomplishments enables our Compensation Board Members to evaluate the specific contributions of the Named Executive Officer to our success and more closely link pay to performance.

 

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Result:  Between Target and Maximum Performance. Each of our Named Executive Officers achieved between target and maximum performance with respect to his or her tailored individual objectives. The significant accomplishments considered by our Compensation Board Members in determining the individual performance component of our Named Executive Officers’ 2017 annual cash incentive awards are summarized below.

 

Name

Accomplishments

Debra A. Cafaro

ü

Delivered financial results at the high end of the Company’s original guidance, including strong 2.5% same-store cash NOI growth, achieving record $3.6 billion revenue and $2.1 billion NOI and 5% growth in net cash provided by operating activities, up to a record number, while continuing to strengthen our balance sheet by maintaining our excellent leverage and improving our liquidity by $1.4 billion, ending the year at 5.7x net debt to adjusted pro forma EBITDA and 4.6x fixed charge coverage.

 

 

ü

Spearheaded and developed and executed strategy for making and committing to $1.8 billion of attractive, value-creating investments, including funding (i) the continued growth in our university-based life sciences and innovation business with significant developments and acquisitions (grown by 37% since inception with a strong pipeline of opportunities), (ii) Ardent Health Services’ successful acquisition of LHP Hospital Group and (iii) selective SHOP and MOB development and redevelopment deals.

 

 

ü

Oversaw and accelerated our strategic and highly profitable disposition program, closing greater than $900 million in profitable dispositions and receipt of timely loan repayments in 2017 and recognizing greater than $700 million in gains, including substantially exiting the skilled nursing business through disposal of more than $700 million in skilled nursing assets.

 

 

ü

Led completion of $4.5 billion in efficient long-term capital raises, including more than $1 billion in long-term debt at attractive rates, an upsized and extended revolving credit facility with $3 billion in borrowing capacity at improved pricing and a $400 million revolving construction credit facility to facilitate funding our broadening development pipeline.

 

 

ü

Drove delivery of 0.7% TSR in 2017 outperforming the three large-cap diversified healthcare REITs in 2017 and our TSR ranked first in this group for the one-, three-, five- and 10-year periods ended December 31, 2017 (as well as since 2000).

 

 

ü

Developing and implementing smooth MOB leadership transition process to ensure continued excellence in our MOB portfolio.

 

 

ü

Successful negotiation of collaborative and mutually beneficial arrangements with our leading operators.

 

 

ü

Significantly enhanced our ESG efforts and profile, including being identified as a “Winning Company” in the 2020 Women on Boards Gender Diversity Index and a “Corporate Champion” by the Women’s Forum of New York for having an industry-leading 30% female Board of Directors, inclusion in the Dow Jones Sustainability Index (attaining top quartile results across ESG metrics among all North American Real Estate companies), achieving the #1 rank among public Healthcare REITs in the 2017 GRESB Real Estate Assessment on Sustainability and representation in the FTSE4GOOD Sustainability Index Series and MSCI Global Sustainability Index.

 

 

ü

Earned numerous prestigious recognitions, including being named one of the 100 Most Powerful Women in the World by Forbes (second consecutive year), Top 100 CEOs in the World by the Harvard Business Review (only 2 women and 1 of only 23 named four consecutive years), 100 Most Influential People in Healthcare by Modern Healthcare and one of National Real Estate Investors’ leading female CEOs in commercial real estate.

 

Robert F. Probst

ü

Drove strong financial results, finishing at the high end of the Company’s original guidance, including strong 2.5% same-store cash NOI growth, while continuing to strengthen our balance sheet.

 

 

ü

Developed and executed $4.5 billion in efficient long-term capital raises, including more than $1 billion in long-term debt at attractive rates, an upsized and extended revolving credit facility with $3 billion in borrowing capacity at improved pricing and a $400 million revolving construction credit facility to facilitate funding our broadening development pipeline.

 

 

ü

Built enhanced and reshaped Finance function, successfully integrating our Accounting and Treasury teams.

 

 

ü

Sharpened investor messaging and expanded investor relations efforts through non-deal roadshows, specialized line of business investor education and asset tours.

 

 

ü

Streamlined financial reporting and controls processes and improved organizational efficiency.

 

 

ü

Met and exceeded liquidity and leverage targets via active balance sheet and cash flow management.

 

 

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Todd W. Lillibridge

ü

Effectively managed our growing MOB portfolio while efficiently controlling operating expenses.

 

 

ü

Enhanced operating platform through implementing best-in-class systems, tools and processes to increase operating efficiency and employee satisfaction.

 

 

ü

Achieved significant cost savings via insourcing.

 

 

ü

Improved collections process through use of comprehensive credit assessment tools and enhanced policies.

 

 

ü

Active role in ensuring smooth and successful transition to new MOB leadership in anticipation of his announced retirement.

 

T. Richard Riney

ü

Expertly led and managed all legal aspects of investments, divestitures and collaborative and mutually beneficial arrangements with our leading operators.

 

 

ü

Provided excellent leadership of our triple-net lease business, drove superior same-store cash NOI growth and optimized same-store cash flow growth.

 

 

ü

Enhanced risk management through key improvements to our policies and procedures, including leadership of our improved enterprise risk management program at the Board level.

 

 

ü

Improved cross-departmental collaboration to achieve efficiencies and cost savings and enhanced training opportunities.

 

 

ü

Developed and implemented efficient organizational realignment of our triple-net and SHOP asset management teams.

 

 

ü

Continued to enhance and drive our customer-focused initiatives.

 

John D. Cobb

ü

Led team through $1.8 billion in attractive, value-creating investments.

 

 

ü

Effective oversight and management of $1.4 billion in development and redevelopment activity across all asset classes, including continued growth in our university-based life sciences and innovation business with significant developments and acquisitions (grown by 37% since inception with a strong pipeline of opportunities).

 

 

ü

Optimized disposition process and completed greater than $900 million of highly profitable dispositions in 2017.

 

 

ü

Key role in negotiating mutually beneficial arrangements with our leading operators to protect shareholder value and foster positive customer relationships.

 

 

ü

Improved collaboration between internal teams to optimize investment strategies and harmonize customer-focused initiatives.

 

 

ü

Enhanced brand awareness through meetings, conferences and industry events.

 

 

Earned Awards.  Based on the performance summarized above, in January 2018, our Compensation Board Members approved 2017 cash incentive awards between the target and maximum levels, ranging from 107% to 149% of our Named Executive Officers’ respective target award opportunities, as set forth in the table below:

 

 Named Executive Officer

Threshold Opportunity

Target Opportunity

Maximum Opportunity

Actual Payout

Debra A. Cafaro

 

$ 1,290,000            

$ 2,150,000            

$ 3,870,000            

3,199,200               

Robert F. Probst

 

768,750            

1,076,250            

1,537,500            

1,357,613               

Todd W. Lillibridge

 

637,500            

892,500            

1,275,000            

956,302               

T. Richard Riney

 

700,000            

980,000            

1,400,000            

1,221,500               

John D. Cobb

 

756,250            

1,058,750            

1,512,500            

1,335,538               

 

The dollar value of each Named Executive Officer’s award is set forth in the “Non-Equity Incentive Plan Compensation” column of the 2017 Summary Compensation Table.

 

2018 Award Opportunities.  In December 2017, our Compensation Board Members approved the 2018 annual cash incentive award opportunities for our Named Executive Officers. The 2018 annual cash incentive award opportunities as a percentage of base salary for all Named Executive Officers remained unchanged from 2017 opportunities.

 

Our Compensation Board Members also approved one change to the performance goals for the 2018 annual cash incentive award program as compared to 2017, replacing the liquidity coverage ratio goal with a debt repayment or refinancing goal, consistent with our strategic plan for 2018 to mitigate interest rate risk, refinancing risk and extend debt maturities. All annual cash incentive award weightings remained the same for 2018 (including debt repayment or refinancing at 15%).

 

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Long-Term Equity Incentive Compensation — Opportunities, Measures and Performance

 

Our Compensation Committee believes that a substantial portion of each Named Executive Officer’s compensation should be in the form of long-term equity incentive compensation. While the annual cash incentive plan rewards management actions that positively impact short- and mid-term performance, equity incentive awards encourage management to create and sustain stockholder value over longer periods because their value is directly attributable to changes in the price of our common stock over time. In addition, equity awards promote management retention because their full value cannot be realized until vesting occurs, which generally requires continued employment for multiple years. At the beginning of each performance year, our Compensation Board Members approve specific performance measures, goals and weightings and an award opportunity range (expressed as multiples of base salary and corresponding to threshold, target and maximum levels of performance) for each Named Executive Officer.

 

2017 Forward-Looking Awards: Responsive Redesign of Long-Term Incentive Compensation

 

In response to our 2016 advisory vote on our Named Executive Officers’ compensation and our Compensation Committee Chairman’s conversations with a significant number of our largest investors, we carefully considered constructive feedback on our executive compensation program and corporate governance provided to us by our largest stockholders and redesigned our long-term incentive compensation program, beginning with the 2017-2019 performance period.

 

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This new program responds directly to the feedback provided by investors in our stockholder engagement process and further emphasizes our commitment to aligning pay and performance, retaining and motivating talented executives and rewarding superior performance without incentivizing undue risk-taking. In addition, the new program is consistent with our overall strategy of targeting the total direct compensation of our Named Executive Officers at approximately the market median, subject to adjustment based on the unique skills, expertise and individual contributions of each Named Executive Officer. The key features of the new 2017 program are summarized below.

 

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ü                          Forward-Looking Rather than Retrospective. The new 2017 long-term incentive compensation program is prospective instead of retrospective. Performance-based awards will be earned at a higher or lower level (including zero payout) based on future performance, rather than being granted following the satisfaction of specified performance goals.

 

ü                          Removal of Qualitative or Discretionary Goals. Consistent with investor feedback, qualitative or discretionary goals, which comprised 50% of the award opportunity under the prior program, have been completely eliminated.

 

ü                          Longer Measurement Period. We have removed all one-year performance periods and moved to all three-year performance periods for performance-based awards.

 

ü                          Increase in Performance-Based Component. Under the new 2017 program, the aggregate target award value for each Named Executive Officer is allocated such that 60% of the value is performance-based, in the form of pRSUs and 40% of the value is time-based RSUs.

 

ü                          Balanced Mix of Performance Metrics; Increase in Relative TSR Metric Weighting.

 

Ø              42.5% of the overall award opportunity under the new 2017 program (and 70.8% of the pRSU award component) may be earned based on two relative TSR metrics (whereas previously, relative TSR metrics were weighted 35% overall).

 

Ø              Consistent with our investors’ strong preference for the maintenance of a risk mitigation metric, 17.5% of the overall award opportunity (and 29.2% of the pRSU component) may be earned based on the three-year average of the ratio of the Company’s net debt to adjusted pro forma EBITDA.

 

ü                          Elimination of Stock Option Component; Longer Time-Based Vesting Period. Stock options have been completely eliminated under the new 2017 program. Time-based RSUs will vest in equal installments on each of the first three anniversaries of the grant date to promote retention, generally subject to the Named Executive Officer’s continued employment with the Company on each such date. Unlike the prior program, no portion of the RSUs will be vested as of the grant date.

 

ü                          Double-Trigger Vesting. All awards granted under the new 2017 program are subject to double-trigger vesting upon the consummation of a change of control.

 

ü                          Dividends Paid on pRSUs when Earned, if at All. Dividend equivalents are accrued and paid on our Named Executive Officers’ pRSUs if and to the extent pRSUs are earned based on performance during the applicable performance period, generally subject to the Named Executive Officer’s continued employment through the end of the applicable performance period.

 

Performance Goals. For 2017, pRSUs may be earned, if it all, based on the Company’s three-year performance from January 1, 2017 through December 31, 2019 in relation to the following three performance goals.

 

 

Three Year Relative TSR Compared to the MSCI REIT Index

Our TSR for the three-year period ending December 31, 2019

relative to the TSR of the MSCI REIT Index for the same period

 

Weighting: 41.7% of pRSU Component (25% of Overall Award Opportunity)

 

Goals:

 

 

 

Below Threshold (No Payout)

Below - 500 basis points

 

 

 

 

Threshold

- 500 basis points

 

 

 

 

Target

Equal to Index

 

 

 

 

Maximum

+ 500 basis points

 

 

 

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Why does this measure matter?  TSR is the most direct measure of our creation and preservation of stockholder value. The MSCI REIT Index is comprised of small, mid and large cap REITs across a diverse set of industries and therefore represents an appropriate index against which we should compare our long-term TSR performance and reward our Named Executive Officers for superior performance.

 

 

Three Year Relative TSR Compared to the FTSE NAREIT Equity Health Care Index

Our TSR for the three-year period ending December 31, 2019

relative to the TSR of the FTSE NAREIT Equity Health Care Index for the same period

 

Weighting: 29.2% of pRSU Component (17.5% of Overall Award Opportunity)

 

Goals:

 

 

 

Below Threshold (No Payout)

Below - 500 basis points

 

 

 

 

Threshold

- 500 basis points

 

 

 

 

Target

Equal to Index

 

 

 

 

Maximum

+ 500 basis points

 

 

 

Why does this measure matter?  TSR is the most direct measure of our creation and preservation of stockholder value. The FTSE NAREIT Equity Health Care Index is comprised of all healthcare REITs and therefore represents an appropriate index against which we should compare our long-term TSR performance and reward our Named Executive Officers for superior performance.

 

 

Three Year Normalized Reported Net Debt to EBITDA

Normalized Reported Net Debt to EBITDA for the three-year period ending December 31, 2019

(Simple Average of 12 Quarter-Ends)

 

Weighting: 29.2% of pRSU Component (17.5% of Overall Award Opportunity)

 

Why does this measure matter?  Normalized Reported Net Debt to EBITDA reflects the strength of our balance sheet and our ability to generate sufficient cash flow earnings to meet our debt obligations. Our commitment to financial strength and flexibility—of which Normalized Reported Net Debt to EBITDA is a key measure and an important element of our comprehensive risk management program—is especially important for REITs, which are required to distribute to stockholders a substantial portion of their annual taxable net income. By maintaining such financial strength, we are able to preserve and enhance stockholder value. First, during recessionary economic cycles or other impacts to our EBITDA, a strong Normalized Reported Net Debt to EBITDA enables us to weather downturns and continue to meet our debt obligations without impairing stockholder capital through dilutive equity offerings or distressed asset sales. In addition, this financial strength enables us to create stockholder value by enabling us to be opportunistic as we continue to execute on our acquisition and investment strategy. It also enables us to maintain a strong BBB or better credit rating, which enhances our cost of capital (a critical component of our continued investment strategy) and provides us with more consistent access to the debt capital markets even during periods of capital market disruption. We seek to maintain a strong Normalized Reported Net Debt to EBITDA ratio, while avoiding suboptimal capitalization from an unnecessarily low ratio. This measure is balanced with our normalized FFO/share growth metric to incent prudent growth while managing risk.

 

 

Form and Amount of Awards. For 2017 only, following our transition to a forward-looking long-term equity incentive plan, our long-term equity incentive plan consisted of three components: (i) pRSUs, which comprise 60% of the regular award opportunity, (ii) time-based RSUs, which comprise 40% of the regular award opportunity and (iii) one-time transition awards in the form of time-based RSUs, which were granted to certain of our Named Executive Officers to partially mitigate the impact of a reduction in the realized pay for our Named Executive Officers in 2018 and 2019 resulting from the transition from a backward-looking long-term equity incentive plan to a forward-looking plan.

 

In accordance with SEC reporting rules, the dollar value of each Named Executive Officer’s first forward-looking equity awards is reported as 2017 compensation in the “Stock Awards” columns of the 2017 Summary

 

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Compensation Table in this Proxy Statement (including pRSU awards reported at the Target level), even though (i) the awards, if earned at all, may vest at a higher or lower amount (including zero for below threshold performance) and the stock price may vary at vesting from the grant date price and (ii) the relevant performance period for pRSUs will conclude at the end of 2019 and no portion of the time-based RSUs or transition awards vested in 2017. The 2017 Summary Compensation Table figures also include the one-time transition awards and the final backward-looking equity awards earned based on 2016 performance.

 

pRSUs

 

The range of pRSU payouts is 0% - 220% of target for Ms. Cafaro and 0% - 180% for the other Named Executive Officers. Ms. Cafaro received pRSUs with a target award opportunity of 434% of her base salary with threshold and maximum award opportunities of 33% of target and 220% of target, respectively. Each Named Executive Officer other than Ms. Cafaro received pRSUs with target award opportunities ranging from 200% - 250% of their base salaries, with threshold and maximum award opportunities of 40% of target and 180% of target, respectively. The table below sets forth each Named Executive Officer’s award opportunity, which was determined by dividing the award dollar amount approved by our Compensation Board Members by the closing price of our stock on the grant date:

 

 Named Executive Officer

Threshold pRSUs

Target pRSUs

Maximum pRSUs

Debra A. Cafaro

 

24,509

 

74,975

 

164,657

 

Robert F. Probst

 

9,884

 

24,710

 

44,479

 

Todd W. Lillibridge

 

6,557

 

16,393

 

29,508

 

T. Richard Riney

7,200

 

18,000

 

32,401

 

John D. Cobb

9,723

 

24,308

 

43,756

 

 

These awards will be earned, if at all, based on the Company’s performance from January 1, 2017 through December 31, 2019 in relation to the preestablished performance goals described above. Dividends will be accrued on pRSU awards and will be paid if and to the extent pRSUs are earned and ultimately pay out to award recipients.

 

These pRSUs are intended to reward long-term performance, strengthen our pay for performance linkage with our stockholders and enhance retention of our Named Executive Officers.

 

Time-Based RSUs

 

The grant date value of the time-based RSU component was equal to 289% of Ms. Cafaro’s base salary and ranged from 144% to 170% of each other Named Executive Officer’s base salary.

 

 Named Executive Officer

Time-Based RSUs

Debra A. Cafaro

49,983

Robert F. Probst

16,803

Todd W. Lillibridge

11,803

T. Richard Riney

12,960

John D. Cobb

16,530

 

One third of the time-based RSUs will vest on each of the first three anniversaries of the grant date, generally subject to the Named Executive Officer’s continued employment with the Company on each such date.

 

These time-based awards are intended to enhance retention among our Named Executive Officers. Dividends are paid on time-based awards in the same manner as paid to all of our stockholders.

 

Transition Awards

 

As a transition between our prior and new 2017 long-term equity incentive programs and to partially mitigate the impact of a reduction in the realized pay for our Named Executive Officers in 2018 and 2019 resulting from the transition from a backward-looking long-term equity incentive plan to a forward-looking plan because the new forward-looking awards do not pay out, if at all, until 2020, certain of our Named Executive Officers received one-time RSU transition awards. Ms. Cafaro received a one-time RSU transition award grant equal to approximately 51% of the value of her regular target annual long-term equity incentive award under the redesigned plan. Messrs. Probst, Cobb and Riney

 

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received one-time RSU transition award grants ranging from 57% to 59% of the value of each individual’s regular target annual long-term equity incentive award under the redesigned plan.

 

 Named Executive Officer

Transition RSUs

Debra A. Cafaro

64,288

 

Robert F. Probst

24,108

 

Todd W. Lillibridge

 

T. Richard Riney

17,679

 

John D. Cobb

24,108

 

 

One third of the RSUs will vest on the first anniversary of the grant date and the remaining two thirds will vest on the second anniversary of the grant date, generally subject to the Named Executive Officer’s continued employment with the Company on each such date. Dividends are paid on time-based transition awards in the same manner as paid to all of our stockholders.

 

These one-time transition awards were designed to partially mitigate the equity vesting gap that will occur in 2018 and 2019 as a result of our transition to a forward-looking long-term equity incentive plan and to enhance retention among certain of our Named Executive Officers, while carefully managing the overall level of our equity awards to be responsive to our investors and ensure continued pay for performance alignment in accordance with our compensation philosophy. The Compensation Committee does not view these awards as a continuing feature of the long-term incentive plan and has no plans to implement similar awards in the future.

 

2017 Awards Earned Based on 2016 Performance

 

As previously noted, the Company switched from a backward-looking long-term equity incentive plan to a forward-looking plan in January 2017. Because the final 2016 backward-looking equity grant (already earned based on 2016 performance but paid in 2017) and the first 2017 forward-looking equity grant (may be earned, if at all, based on 2017-2019 performance) were granted in 2017—regardless of the performance period or year of vesting—SEC disclosure rules require us to report both awards in this year’s Summary Compensation Table.

 

Award Opportunities. In December 2015, our Compensation Board Members approved the 2016 long-term equity incentive award opportunities for our Named Executive Officers. The 2016 long-term equity incentive award opportunities for Ms. Cafaro and Messrs. Probst, Riney and Cobb remained unchanged from their opportunities as of the end of 2015. Mr. Lillibridge received an increase to his long-term equity incentive award opportunity by 75 basis points at each of the threshold (from 200% to 275%), target (from 275% to 350%) and maximum (from 350% to 425%) levels, effective as of January 1, 2016, as part of an overall strategy to target total direct compensation at approximately the market median and to provide attractive variable incentive compensation opportunities for outperformance.

 

Each Named Executive Officer’s 2016 target total direct compensation was positioned near or slightly below the market median of the Comparable Companies. Ms. Cafaro’s long-term equity incentive structure has greater leverage and a wider range of outcomes than the structures of our other Named Executive Officers in support of the view that our Chief Executive Officer’s compensation should be even more closely aligned with stockholders than our other executive officers.

 

Results and Award Amounts. Long-term equity incentive awards granted in the form of restricted stock (60% of award) and stock options (40% of award) to our Named Executive Officers in 2017 for 2016 performance ranged from 116% to 137% of our Named Executive Officers’ respective target award opportunities, as set forth in the following table:

 

 Named Executive Officer

Threshold Opportunity

Target Opportunity

Maximum Opportunity

Actual Payout

Debra A. Cafaro

$ 4,300,000

 

$ 6,450,000

 

$ 9,137,500

 

$ 8,825,719

 

Robert F. Probst

1,628,000

 

2,072,000

 

2,516,000

 

2,434,881

 

Todd W. Lillibridge

1,358,500

 

1,729,000

 

2,099,500

 

2,002,152

 

T. Richard Riney

1,487,750

 

1,893,500

 

2,299,250

 

2,225,105

 

John D. Cobb

1,487,750

 

1,893,500

 

2,299,250

 

2,265,661

 

 

With respect to our goals measured as of December 31, 2016, we achieved maximum performance with respect to our one-year relative TSR of 18.1% (15% of award opportunity) and Net Debt to EBITDA of 5.7x (15% of award

 

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opportunity) goals and between target and maximum performance with respect to our three-year relative TSR of 12.5% (20% of award opportunity). We also achieved between target and maximum performance with respect to the qualitative evaluation of our performance with respect to the financial, operational and strategic objectives that accounted for the remaining 50% of the award opportunity. The restricted stock and stock option awards vest in equal one-third annual installments beginning on the date of grant.

 

In accordance with SEC reporting rules, the dollar value of each Named Executive Officer’s equity award for 2016 performance is reported as 2017 compensation in the “Stock Awards” and “Option Awards” columns of the 2017 Summary Compensation Table in this Proxy Statement, even though the relevant performance period concluded at the end of 2016 and two-thirds of the earned awards remained unvested at the end of 2017.

 

 

Recurring CEO compensation is substantially lower than reflected in the 2017 Summary Compensation Table because SEC rules require us to report all equity grants made in 2017, including the final 2016 “backward-looking” equity grant and the non-recurring transition awards. For 2017, target CEO total direct compensation is $11.3 million on a recurring, normalized basis.

 

 

2018 Award Opportunities.  In December 2017, our Compensation Board Members approved the long-term equity incentive award opportunities for the January 1, 2018 – December 31, 2020 performance period for our Named Executive Officers. The long-term equity incentive award opportunities changed slightly from the 2017 opportunities, as shown in the table below:

 

 Named Executive
Officer

2017 Total Award Opportunity

2018 Total Award Opportunity

Threshold

Target

Maximum

Threshold

Target

Maximum

Debra A. Cafaro

$ 4,635,000

$ 7,775,000

$ 13,355,000

$ 4,635,000

$ 8,305,000

$ 13,355,000

Robert F. Probst

1,660,500

2,583,000

3,813,000

1,787,805

2,979,675

4,416,192

Todd W. Lillibridge

1,142,400

1,754,400

2,570,400

T. Richard Riney

1,254,400

1,926,400

2,822,400

1,285,200

2,142,000

3,170,160

John D. Cobb

1,633,500

2,541,000

3,751,000

1,784,599

2,974,331

4,408,272

 

These changes to the long-term equity incentive award opportunities for our Named Executive Officers were made following our annual benchmarking review. At these levels, the Compensation Board Members considered each Named Executive Officer’s long-term equity incentive award opportunities to be within the competitive range given each individual’s unique skills, expertise and individual contributions. Mr. Lillibridge is not eligible to receive an equity award in 2018 due to his retirement from the Company.

 

The performance goals for the long-term equity incentive award program remained unchanged for 2018 but the weightings were slightly altered to provide consistency across the relative TSR metrics. TSR relative to the MSCI REIT Index changed from 25% to 22%, TSR relative to the FTSE NAREIT Equity Health Care Index was increased from 17.5% to 22% and three-year normalized reported net debt to EBITDA was reduced from 17.5% to 16%.

 

Other Benefits and Perquisites

 

Our executive compensation program focuses on the elements described above, with extremely limited provision of perquisites. Our Named Executive Officers are generally eligible to participate in the same benefit programs that we offer to other employees, which in 2017 included the following:

 

ü

health, dental and vision insurance (of which we paid 90% of the premium in 2017);

 

 

ü

short-term disability, long-term disability and life insurance coverage (at no cost to the employee); and

 

 

ü

participation in a 401(k) plan (to which we made matching contributions up to 3.5% of the employee’s base salary, up to the federal limit, in 2017).

 

We believe these benefits are competitive with overall market practices. In addition, we provide certain limited perquisites and other benefits to attract and retain superior employees for key positions. The only benefit provided to our Named Executive Officers in 2017 that was not otherwise available to all employees consisted of legacy supplemental

 

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disability and life insurance coverage, including reimbursement for taxes relating to that life insurance coverage, for Ms. Cafaro. Our Compensation Committee periodically reviews the perquisites and other personal benefits provided to each Named Executive Officer and has determined that they are consistent with current market practice. Except for the eligibility to participate in, and our matching contributions to, the 401(k) plan, as described above, we do not provide our Named Executive Officers with any retirement benefits.

 

Severance Benefits

 

Our Named Executive Officers are entitled to receive severance benefits under existing agreements upon certain qualifying terminations of employment (subject to any required payment delay pursuant to Section 409A of the Code). Generally, these severance arrangements support executive retention and continuity of management and provide replacement income if an executive is terminated involuntarily other than for cause.

 

None of our executive officers are entitled to severance benefits solely upon a change of control of our company. Moreover, our Chief Executive Officer is not entitled to any tax gross-ups with respect to payments made in connection with a change of control. Although a long-standing legacy arrangement with Mr. Riney provides a tax gross-up with respect to payments made in connection with a change of control, no such gross-up payment would have been payable to him under the scenarios and assumptions presented under “Potential Payments Upon Termination or Change of Control” in this Proxy Statement. At the time we entered into this arrangement with Mr. Riney, our Compensation Committee considered the potential severance benefits, including any potential tax gross-up, to be necessary to attract and retain Mr. Riney and, based on the market compensation analyses of the Compensation Committee’s independent compensation consultant, to be consistent with then-current competitive market practices. Our Employee Protection and Non-Competition Agreements with Messrs. Probst, Lillibridge and Cobb do not provide for any tax gross-up payments in connection with a change of control.

 

In 2013, consistent with our commitment to strong corporate governance and responsiveness to our stockholders, our Board adopted a policy against tax gross-up arrangements, which formalized our existing practice of not entering into new tax gross-up arrangements with our executive officers.

 

Tax Considerations

 

Section 162(m) of the Code generally places a limit of $1 million on the amount of compensation that we may deduct in any year with respect to certain covered executive officers. Although we consider the impact of Section 162(m), as well as other tax and accounting consequences, when developing and implementing our executive compensation programs, our Compensation Committee retains flexibility to make compensation decisions that do not meet the requirements for deductibility under Section 162(m) when it considers it appropriate or necessary to do so. In addition, due to ambiguities and uncertainties as to the interpretation and application of Section 162(m) of the Code, no assurances can be given that compensation would satisfy the requirements for deductibility under Section 162(m), even if intended to do so. Accordingly, our Compensation Committee may approve compensation that exceeds the $1 million limit or does not otherwise meet the requirements of Section 162(m).

 

Voluntary Adoption of Proxy Access

 

In January 2017, our Board voluntarily amended and restated our bylaws to add a proxy access bylaw. Subject to certain requirements, a stockholder, or group of up to 20 stockholders, owning three percent or more of our outstanding common stock continuously for at least three years, may nominate and require us to include in our proxy materials for an annual meeting of stockholders director candidates constituting up to 20% of the Board, rounding down to the nearest whole number, but not less than two directors.

 

Minimum Share Ownership Guidelines for Executive Officers

 

Our minimum share ownership guidelines require each executive officer to maintain a minimum equity investment in our company based upon a multiple (six times, in the case of the Chief Executive Officer, up from five times prior to January 2017, and three times, in the case of all other executive officers) of his or her base salary at the time his or her compliance with the guidelines is evaluated. Each executive officer must achieve the minimum equity investment within five years from the date he or she first becomes subject to the guidelines and, until that time, must retain at least 60% of the shares of our common stock granted to the executive officer or purchased by the executive officer through the exercise of stock options. The independent members of our Board annually review each executive officer’s compliance with the guidelines as of July 1. All of our executive officers are currently in compliance with the minimum share ownership guidelines. Except as described above, our minimum share ownership guidelines and our 2012 Incentive Plan do not

 

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specify a minimum holding period for stock options, restricted stock or other equity grants.

 

Recoupment Policy

 

The Board has adopted a Policy for Recoupment of Incentive Compensation that allows us to recapture amounts paid to our executive officers under certain circumstances. Under this policy, our Compensation Committee may require an executive officer to repay all or a portion of any excess cash or equity incentive compensation he or she received during the preceding three-year period if the incentive compensation was based on achieving certain financial results that were later required to be restated due to our material noncompliance with any financial reporting requirement.

 

Following the SEC’s adoption of final rules regarding executive compensation recoupment policies pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, we will review our recoupment policy and make any changes necessary to comply with the final rules.

 

Anti-Hedging and Pledging Policy

 

Our Securities Trading Policy prohibits our directors, executive officers and employees from engaging in derivative and other hedging transactions in our securities and restricts our executive officers and directors from holding our securities in margin accounts or otherwise pledging our securities to secure loans without the approval of our Audit Committee. No executive officer or director pledged or held our securities in margin accounts at any time during 2017.

 

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Compensation Tables

 

2017 Summary Compensation Table

 

The following table sets forth the compensation awarded or paid to, or earned by, each of our Named Executive Officers during 2017, 2016 and 2015, which includes equity incentive awards granted in each such year that were earned for performance in 2016, 2015 and 2014, respectively.

 

 

Recurring CEO compensation is substantially lower than reflected in the 2017 Summary Compensation Table because SEC rules require us to report all equity grants made in 2017, including the final 2016 “backward-looking” equity grant and the non-recurring transition awards. For 2017, target CEO total direct compensation is $11.3 million on a recurring, normalized basis.

 

 

For more information regarding the total direct compensation earned by our Named Executive Officers for 2017 performance, see “Compensation Discussion and Analysis—Executive Summary” above.

 

Name and Principal Position

Year

Salary
($)

Stock Awards
(1)
($)

Option
Awards(1)
($)

Non-Equity
Incentive Plan
Compensation
(2)
($)

All Other
Compensation
(3)
($)

Total
($)

Debra A. Cafaro

Chairman of the Board and Chief Executive Officer 

2017

$1,075,000

 

$ 17,385,196

 

$ 3,530,299

 

$ 3,199,200

 

$ 64,912

 

$ 25,254,607

 

2016

1,075,000

 

2,918,592

 

2,415,093

 

3,196,190

 

61,148

 

9,666,023

 

2015

1,075,000

 

4,353,197

 

1,865,572

 

3,569,000

 

60,941

 

10,923,710

 

Robert F. Probst

2017

615,000

 

5,647,649

 

973,955

 

1,357,613

 

10,080

 

8,604,297

 

Executive Vice President and Chief Financial Officer

2016

592,000

 

791,466

 

654,928

 

1,289,228

 

9,369

 

3,336,991

 

2015

575,000

 

300,512

 

128,823

 

1,337,249

 

9,379

 

2,350,963

 

Todd W. Lillibridge

Executive Vice President, Medical Property Operations; President and Chief Executive Officer, Lillibridge Healthcare Services, Inc.

2017

2016

2015

510,000

494,000

479,900

 

3,024,492

572,272

837,455

 

800,870

473,548

358,902

 

956,302

864,369

738,801

 

12,222

9,369

11,059

 

5,303,886

2,413,558

2,426,117

 

T. Richard Riney

Executive Vice President, Chief Administrative Officer, General Counsel and Ethics and Compliance Officer

2017

2016

2015

560,000

541,000

525,600

 

4,436,973

699,808

908,587

 

890,050

579,090

389,378

 

1,221,500

1,178,163

1,185,570

 

12,222

9,369

9,379

 

7,120,745

3,007,430

3,018,514

 

John D. Cobb

Executive Vice President and Chief Investment Officer

2017

605,000

 

5,502,415

 

906,278

 

1,335,538

 

10,080

 

8,359,311

 

2016

541,000

 

730,522

 

604,494

 

1,216,033

 

9,369

 

3,101,418

 

2015

525,000

 

1,907,422

 

388,927

 

1,230,154

 

9,379

 

4,060,882

 

 

(1)

The amounts shown in the Stock Awards and Option Awards columns reflect the full grant date fair value of (i) the restricted stock and stock options granted to our Named Executive Officers in 2017, 2016 and 2015 for performance in 2016, 2015 and 2014 and (ii) for 2017 only, the 2017 pRSUs, 2017 time-based RSUs and 2017 one-time transition time-based RSUs, all of which are calculated pursuant to FASB guidance relating to fair value provisions for share-based payments. See Note 12 of the Notes to Consolidated Financial Statements included in the 2017 Form 10-K for a discussion of the relevant assumptions used in calculating grant date fair value. For further information on these awards, see the 2017 Grants of Plan-Based Awards Table and 2017 Outstanding Equity Awards at Fiscal Year-End Table in this Proxy Statement. These grant date award values, including the maximum potential value of pRSUs as of the grant date, are shown below.

 

 Name

Restricted Stock

Time-Based RSUs

Transition RSUs

pRSUs (at Target)

Total Grant Date
Fair Value

Maximum Value of
pRSUs

Debra A. Cafaro

$ 5,295,420

 

$ 3,109,942

 

$ 3,999,999

 

$ 4,979,835

 

$ 17,385,196

 

$ 10,936,518

 

Robert F. Probst

1,460,926

 

1,045,483

 

1,500,000

 

1,641,240

 

5,647,649

 

2,954,295

 

Todd W. Lillibridge

1,201,282

 

734,383

 

 

1,088,827

 

3,024,492

 

1,959,914

 

T. Richard Riney

1,335,055

 

806,371

 

1,099,987

 

1,195,560

 

4,436,973

 

2,152,079

 

John D. Cobb

1,359,383

 

1,028,497

 

1,500,000

 

1,614,535

 

5,502,415

 

2,906,276

 

 

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Table of Contents

 

(2)

The amounts shown in the Non-Equity Incentive Plan Compensation column reflect annual cash incentive awards earned by our Named Executive Officers for performance in 2017, 2016 and 2015.

 

 

(3)

The amounts shown in the All Other Compensation column for 2017 include supplemental disability insurance premiums (in the amount of $46,848) and supplemental life insurance premiums paid on behalf of Ms. Cafaro; group term life insurance premiums paid on behalf of our Named Executive Officers; reimbursement for the payment of taxes relating to such group term life insurance for Ms. Cafaro (in the amount of $2,430); and our matching contributions to the Named Executive Officers’ 401(k) plan accounts (in the amount of $9,450 for each Named Executive Officer).

 

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2017 Grants of Plan-Based Awards Table

 

The following table provides additional information relating to grants of plan-based awards made to our Named Executive Officers during 2017:

 

 

Name

 

Grant
Date

Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards

Estimated future payouts under equity incentive plan
awards

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)

Exercise
or Base
Price of
Option
Awards(1)
($/Sh)

Grant Date
Fair Value
of Stock
and
Option
Awards(2)
($)

Threshold
($)

Target
($)

Maximum
($)

Threshold
(#)

Target
(#)

Maximum
(#)

Debra A. Cafaro

 

 

(3)

$1,290,000

 

$2,150,000

 

$3,870,000