DEF 14A 1 nc10007408x1_def14a.htm DEF 14A

 

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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VENTAS, INC.
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TABLE OF CONTENTS  

  Page
// PROXY STATEMENT SUMMARY 2  
Financial and Operating Performance 2  
Portfolio Highlights 3  
ESG Leadership and Recognition 5  
Corporate Governance Highlights 10  
// PROPOSAL 1: SAY ON PAY VOTE 11  
// OUR BOARD OF DIRECTORS 16  
Criteria for Board Membership 16  
Annual Board Evaluation Process 18  
// PROPOSAL 2: DIRECTOR ELECTIONS 19  
Director Skills Matrix 20  
Board Leadership Structure 21  
Board Meetings 22  
Board Committees 23  
Director Biographies 26  
// CORPORATE GOVERNANCE 32  
Governance Policies 32  
Voluntary Adoption of Proxy Access 32  
Transactions with Related Persons 32  
Compensation Committee Interlocks and Insider Participation 32  
Risk Management 33  
Public Policy Matters 34  
Contacting the Board of Directors 35  
// NON-EMPLOYEE DIRECTOR COMPENSATION 35  
Cash Compensation 35  
Equity-Based Compensation 36  
Review of Non-Employee Director Compensation 36  
Minimum Share Ownership Guidelines for Non-Employee Directors 36  
2019 Non-Employee Director Compensation Table 37  
// PROPOSAL 3: AUDITOR RATIFICATION 38  
Audit Committee Report 38  
Audit and Non-Audit Fees 39  
Policy on Pre-Approval of Audit and Permissible Non-Audit Services 39  
// OUR EXECUTIVE OFFICERS 40  
   
  Page
//  COMPENSATION DISCUSSION AND ANALYSIS 42  
Executive Summary 42  
Executive Compensation Philosophy 48  
Objectives of Our Compensation Program 48  
Benchmarking and Comparable Companies 48  
Proactive Investor Outreach 49  
Compensation Mix 53  
Elements of Our Compensation Program 53  
Other Policies 66  
//  COMPENSATION COMMITTEE REPORT 66  
// COMPENSATION TABLES 67  
2019 Summary Compensation Table 67  
2019 Grants of Plan-Based Awards Table 68  
2019 Outstanding Equity Awards at Fiscal Year-End Table 69  
2019 Options Exercised and Stock Vested Table 71  
Employment and Severance Agreements with Named Executive Officers 71  
Potential Payments Upon Termination or Change of Control 74  
Equity Compensation Plan Information 76  
// CEO PAY RATIO 77  
// TRADING IN COMPANY SECURITIES 77  
// SECURITIES OWNERSHIP 78  
Directors, Director Nominees and Executive Officers 78  
Principal Stockholders 79  
Delinquent Section 16(a) Reports 79  
// 2020 ANNUAL MEETING INFORMATION 80  
Questions and Answers 81  
Electronic Document Delivery to Stockholders 81  
// REQUIREMENTS FOR SUBMISSION OF STOCKHOLDER PROPOSALS, DIRECTOR NOMINATIONS AND OTHER BUSINESS 82  
// ADDITIONAL INFORMATION 82  
// ANNEX A: NON-GAAP FINANCIAL   MEASURES RECONCILIATION A-1  

 

 


 

 



 

 

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PORTFOLIO HIGHLIGHTS

 

 

 

Research & Innovation (R&I)

  

Ventas is the leading owner of university-based R&I real estate in the U.S. With the increasing speed of biomedical and genetic innovation to support the growing prevalence of chronic disease—more than 50% of Americans will suffer from multiple chronic conditions by 2030—these vibrant, amenity-rich knowledge communities are home to the leading academic institutions who are driving the dynamic convergence of medicine, cutting-edge research and technology.


 

 


 

 

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In 2019, Ventas established a new platform for growth when it completed its investment in Le Groupe Maurice (“LGM”), one of Canada’s most celebrated best-in-class, fully integrated designer, developer and operators of seniors housing throughout its 20-year history. Known for its service, quality and innovation, LGM’s Class A portfolio of purpose-built high-quality, apartment-like seniors housing communities is located in the attractive Quebec market. Ventas also has the exclusive right to fund and own future developments in partnership with LGM.

 

 

 

Each LGM community maintains a distinctive architecture designed to integrate with the surrounding community, and bears a name with local significance. Each community is approximately 300 to 400 units, and is built on sites offering easy access to retail, restaurants, transport and other amenities. The buildings are highly amenitized, and include features like golf simulators, bowling alleys, full-service pharmacies and convenience stores, pools large enough for lap swimming, and indoor and outdoor gardens. The unit mix heavily favors independent living and includes a small care component.

 

 

 


 

 

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esg leadership and recognition

 

 

 


 

 

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ADVISORY VOTE TO APPROVE our  

EXECUTIVE COMPENSATION

 

We are submitting to our stockholders a non-binding advisory vote on the compensation of our Named Executive Officers, as disclosed in this Proxy Statement pursuant to the SEC’s compensation disclosure rules.

 

This summary highlights important information regarding our 2019 executive compensation program. It does not include all the information that you should consider. Before voting, you should carefully read the entire Proxy Statement and other pertinent documents, including our 2019 Form 10-K.

 

Executive Compensation Philosophy

 

Our executive compensation philosophy is to closely link compensation to performance by emphasizing performance-based incentive compensation over fixed cash compensation, so that the vast majority of total direct compensation is variable and not guaranteed. Our executive compensation program is designed to attract, retain and motivate talented executives, create alignment with stockholders and reward executives for the achievement of pre-established company objectives combined with tailored individual goals, consistent with our strategic plan.

 

In 2019, our compensation decisions once again reflected strong alignment between pay and performance. In determining the incentive compensation paid to our Named Executive Officers for 2019, our Executive Compensation Committee (the “Compensation Committee”) of our Board of Directors (the “Board”), which is responsible for evaluating and setting the compensation of our Named Executive Officers other than the Chief Executive Officer (“CEO”), and the independent members of our Board, who are responsible for evaluating and setting the compensation for our CEO pursuant to our 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 goals under our annual cash and long-term equity incentive plans.

 

Responsiveness to Stockholder Feedback and Pay Alignment

 

In late 2019 we continued our extensive stockholder outreach program to 50 of our largest investors (holding ~71% of our shares); our Compensation Committee Chairman was an active participant. We received varied and diverse constructive feedback from our investors during this outreach program, largely centering on investors’ desire to see strong pay and performance alignment in connection with our 2019 and three-year TSR performance, which fell short of our expectations on a full-period basis after an excellent start through the first three quarters of 2019 and 11 of 12 quarters in the three-year period ending December 31, 2019; having been impacted negatively in the final quarter of both measurement periods. Our responsive actions are detailed below.

 

Our strong pay-for-performance linkage, and alignment of our realized executive pay with stockholder outcomes, were clearly demonstrated upon the first vesting event that occurred at the end of 2019 under our forward-looking long-term equity incentive compensation program that we redesigned in response to investor feedback in early 2017. Both formulaic pay inputs, as well as discretionary decisions made by our Compensation Board Members, reinforced that linkage.

 

Although our TSR was strong in 11 out of the 12 quarters and we attained positive 2.5% three-year compound annual TSR during the three-year period ending December 31, 2019, our stock price performance fell meaningfully in the last quarter of 2019, which had a material impact on our executive compensation results as well as our 2020 executive compensation decisions, as outlined below.

 

Forfeiture of 2017-2019 Performance-Based Restricted Stock Unit (“pRSU”) Awards and Dividend Equivalents Due to Below-Threshold Performance

 

Our carefully crafted compensation plan is working as intended to align our Named Executive Officers’ realized compensation with the returns delivered to stockholders over the same period. The primary performance metrics for these first pRSU awards were relative TSR compared to two different peer group indices, both of which finished below threshold and resulted in more than 70% of the awards paying out at zero.

 

Collectively, our three current Named Executive Officers who received 2017 pRSU awards therefore forfeited over $6.2 million of equity compensation, comprised of $5,464,658 equity ($62.22 pRSU grant date stock price multiplied by the number of forfeited shares linked to relative TSR goals awarded at the target level in 2017) and $760,151 related dividend equivalents, as detailed in the table below. More than $3.75 million of the total equity and dividend equivalent forfeiture amount is attributed to Ms. Cafaro.

 


 

 

 

 

 

 Name

Forfeited TSR pRSUs 

(Total 2017 Target) 

Forfeited pRSUs  

(Value at $62.22 Grant Price) 

Dividend Equivalent  

Forfeiture 

Total Forfeiture 

Value 

Debra A. Cafaro 53,107 $ 3,304,318 $ 459,641 $ 3,763,959
Robert F. Probst 17,503 1,089,037 151,488 1,240,525
John D. Cobb 17,218 1,071,304 149,022 1,220,326
Total 87,828 $ 5,464,658 $ 760,151 $ 6,224,810


The forfeiture amounts above are not reflected in the 2019 Summary Compensation Table in this Proxy Statement. SEC rules require us to report the grant date fair value of equity awards at the target level, regardless of actual award attainment levels or realized value.

 

Discretionary Actions Taken to Align Pay and Performance

 

In addition to significant reductions to realized 2019 equity pay for the CEO and other Named Executive Officers due to the forfeiture of a majority of the 2017 pRSUs and related dividend equivalents as detailed above, our Compensation Board Members implemented several actions in recognition of the end-of-year decline in our stock price and in response to 2020 investor feedback regarding pay and performance alignment.

 

Negative Discretion Exercised Regarding CEO Annual Cash Incentive

 

The Compensation Board Members applied negative discretion to materially reduce the CEO’s 2019 annual cash incentive award, to below the target level, despite above-target performance on both her quantitative and qualitative 2019 annual goals. This resulted in a 50% reduction in her earned annual cash incentive award, which reduced her payout by nearly $1.8 million.

 

Specifically, based upon actual 2019 annual cash incentive award performance with respect to the pre-established quantitative goals and attainment at 90% of the maximum level with respect to our CEO’s qualitative individual performance goals, as measured by our Compensation Board Members, and reflecting Ms. Cafaro’s outstanding long-term performance and current value to the Company, her short-term annual cash incentive award payout would have been $3,579,263, or 166% of her target award and 92% of her maximum award for fiscal 2019 performance.  

 

However, as a result of Company’s three-year relative TSR underperformance that primarily occurred in the final quarter of 2019, and in order to demonstrate even greater alignment between CEO pay and results for stockholders, the Compensation Board Members exercised negative discretion with respect to our CEO’s attainment of both the quantitative and qualitative performance goals under the 2019 annual cash incentive award, reducing her 2019 payout by 50% overall, to $1,789,631, which is 83% of her target award and 46% of her maximum award.

 

This 2019 payout, made as the result of the exercise of negative discretion by the Compensation Board Members, is also $1.6 million less than the average short-term incentive payout received by the CEO the preceding three-year period, and is her lowest short-term incentive payout since 2008.

 

No 2020 Merit Increases for Top Three Named Executive Officers

 

In addition, our Compensation Board Members demonstrated accountability for TSR performance by approving zero merit increases to all 2020 compensation components for our three highest-paid Named Executive Officers, including keeping Ms. Cafaro’s base salary at the same level as it has been since 2015.

 

Enhanced 2020 Short-Term and Long-Term Metric Selection and Goal Setting

 

Finally, to align executive pay with attainment of our most critical objectives and in response to investor feedback, our Compensation Board Members also made several stockholder-focused changes to the goals and weightings of the 2020 annual cash incentive and long-term equity incentive compensation plans, consistent with our strategic plan.

 

Changes to the performance goals for the 2020 annual cash incentive award program as compared to 2019 are as follows: (i) eliminated the Fixed Charge Coverage goal, (ii) eliminated the Research & Innovation Development Growth goal, (iii) reduced weighting of the Normalized FFO per Share goal from 40% to 30%, (iv) added Liquidity management goal at 15% weighting, (v) added Development Investment goal at 10% weighting to incent timely progress on the Company’s R&I development pipeline and (vi) added a Net Debt to Adjusted Pro Forma EBITDA goal at 10% weighting to ensure the Company maintains financial strength and flexibility.

 

The 2020 pRSUs as compared to 2019: (i) retained the same two relative TSR metrics at identical weighting and performance levels, meaning that greater than 70% of the pRSU value for our Named Executive Officers continues to be tied to rigorous relative TSR metrics, (ii) eliminated the three-year Reported Net Debt to Adjusted Pro Forma EBITDA goal (one-year goal was added to the annual cash incentive plan), (iii) added a three-year Research & Innovation Pipeline Openings goal at 11.7% weighting for the CEO and 10% weighting for all other Named Executive Officers to incent on-time delivery of these development projects and (iv) included quantitative Gender Balance goal focused on improving the Company’s representation of women employees was added at 6.9% weighting for the CEO and 6% weighting for all other Named Executive Officers to incent ESG performance.

 

 


 

 

 

 

 

All the 2019 and 2020 responsive actions and improvements to our executive compensation program are further detailed below in the “Proactive Investor Outreach” section of the Compensation Discussion and Analysis.

 

CEO Pay Alignment with TSR

 

 

 

This graph illustrates our long-term pay-for-performance alignment by comparing our CEO’s Total Direct Compensation to our TSR performance (indexed to a 2014 base year) for each of the past five years. “Total Direct Compensation” includes, for the applicable year, base salary, earned annual cash incentive awards, the value of equity incentive awards and “All Other Compensation” as reported in the Summary Compensation Table. This graph differs from compensation reported in the 2019 Summary Compensation Table in the following respects:

 

// For 2014-2016, 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.
// For 2017-2019, when our current forward-looking long-term equity incentive plan went into effect, we report the grant date fair value of time-based restricted stock units (“RSUs”) and pRSUs (approximating target level of performance) granted in 2017-2019 that may be earned, if at all, based on the Company’s performance relative to three-year goals measured during the applicable performance periods. Actual payouts occur in the year following the end of each applicable performance period and range from 0% - 220% of the target value.
// The 2019 figure depicts the CEO’s $3,763,959 realized reduction in pay resulting from earning 0 pRSUs under the TSR metrics upon completion of the first full 2017-2019 pRSU performance period, meaning that our CEO received zero payout with respect to greater than 70% of the total award. This $3,763,959 figure is comprised of $3,304,318 equity ($62.22 pRSU grant date stock price multiplied by 53,107 forfeited shares linked to relative TSR goals at the target level in 2017) and $459,641 related dividend equivalents. These forfeiture amounts are not reflected in the 2019 Summary Compensation Table in this Proxy Statement. SEC reporting rules require us to report the grant date fair value of equity awards at the target level, regardless of actual award attainment levels or realized value.
// The 2017 figure excludes a one-time time-based RSU transition award received by our CEO, which was designed to partially mitigate the impact of a reduction in the realized pay for our CEO in 2018 and 2019 resulting from the transition from a backward-looking long-term equity incentive plan to a stockholder-focused forward-looking plan because the new forward-looking award did not pay out, if at all, until 2020 and later. This award is excluded because it was one-time in nature, has not recurred and the Compensation Committee does not view such awards as a continuing feature of the long-term equity incentive plan.

 

 


 

 

 

 

 

2019 Compensation Practices at a Glance

 

 

 


 

 

 

 

 

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. Moreover, the Compensation Board Members’ ability and discipline in exercising negative discretion when appropriate to better align our realized executive pay with stockholder outcomes enhanced the effectiveness of our overall executive compensation program. Both 2019 compensation, in light of our fourth quarter 2019 underperformance, and our exceptional long-term performance demonstrate the success of this program and application.

 

Based on the information provided above and elsewhere in this Proxy Statement, we believe our executive compensation program is designed appropriately to support our key objectives. Accordingly, our Board recommends that stockholders vote in favor of the following resolution:

 

“RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Proxy Statement for the 2020 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the 2019 Summary Compensation Table, the accompanying compensation tables and the related narrative disclosure.”

 

The affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting is required to approve, on an advisory basis, our executive compensation. Abstentions will have the same effect as votes against such proposal, and broker non-votes will have no effect. Although the results of the stockholder vote on this proposal are non-binding, the Board values continuing and constructive feedback from our stockholders on compensation. Our Compensation Board Members will consider the outcome of the vote when making future executive compensation decisions.

 

 

 


 

 

 

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 CEO, Chief Financial Officer, Chief Investment Officer and other members of senior management.

 

 

 

 



 

  

Independence

 

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

 

In evaluating the independence of Mr. Lustig, the Board considered that he is employed by Lazard Freres & Co. LLC (“Lazard”), which is a large multi-national financial institution that, with its affiliates, has engaged in financial advisory and investment banking services for the Company and its subsidiaries, for which it may receive customary compensation, fees and expense reimbursement. However, the Board did not believe that the Company’s relationship with Lazard impacted the independence of Mr. Lustig for the following reasons:

 

// Lazard is a large multi-national financial institution and the Company has had a relationship with Lazard for many years prior to Mr. Lustig’s appointment to the Board;
// Mr. Lustig had no involvement (either in his capacity as a director of the Company or as an employee of Lazard) in the selection of Lazard to provide the services described above or the terms or pricing of any such services; and
// Amounts paid by the Company to Lazard for the services described above would represent an immaterial percentage of Lazard’s and its affiliates’ gross revenues, and would be well below the amounts that would preclude a finding of independence under the NYSE listing standards.

 

Diversity

 

In evaluating potential director candidates, 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. Our Guidelines on Governance provide that, in general, nominees for membership on the Board should:

 

// have demonstrated management or technical ability at high levels in successful organizations;
// have experience relevant to our operations, such as real estate, REITs, healthcare, finance or general management;
// be well-respected in their business and home communities;
// have time to devote to Board duties; and
// be independent from us and not related to our other directors or employees.

Our directors are also 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.

 

Capacity

 

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 addition, the Nominating Committee recognizes that Audit and Compliance Committee (“Audit Committee”) members must have adequate time to devote to Audit Committee activities, given that such responsibilities command a significant portion of directors’ time. As a result, 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.

 

Tenure and Refreshment

 

Our Nominating Committee 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. The Nominating Committee and the Board have refreshed and diversified the composition of the Board over the course of the last several years through the departures of four directors, including our two longest-tenured directors. Ronald Geary, who was previously our longest tenured director, resigned from the Board during 2015 and Mr. Crocker retired from the Board during 2016. In addition, Doug Pasquale was not renominated for election at our 2017 Annual Meeting and Glenn Rufrano was not renominated at our 2018 Annual Meeting. Messrs. Crocker and Geary were replaced by Ms. Martino and Mr. Rakowich during 2016 and Mr. Nolan joined our Board on July 26, 2019.

 

Director Resignation Policy

 

In accordance with our Director Resignation Policy, our Board will nominate an incumbent director for reelection only if the director agrees that, in the event the director fails to receive the required majority vote for reelection, he or she will tender, promptly following certification of the election results, an irrevocable resignation that will be effective upon acceptance by the Board. If an incumbent director fails to receive the required majority vote for reelection, our Nominating Committee will act on an expedited basis to determine whether to recommend acceptance or rejection of the director’s resignation and submit its recommendation for prompt consideration by the Board. Our Board will act on the Nominating Committee’s recommendation and publicly disclose its decision regarding the tendered resignation by filing a Current Report on Form 8-K with the SEC no later than 90 days following certification of the election results.

 

Any director who tenders his or her resignation pursuant to our Director Resignation Policy may not participate in any Nominating Committee or Board decision regarding that resignation. If less than a majority of the Nominating Committee members receive the required vote in favor of their reelection in the same election, then the independent directors who received the required vote will be constituted by our Board as a committee to consider the tendered resignation(s) and make a recommendation to the Board. However, if three or fewer independent directors receive the required vote in the same election, all directors not required by the Director Resignation Policy to tender a resignation may participate in considering and recommending to the Board whether to accept or reject the resignation(s).

 

Under our Guidelines on Governance, a director is required to retire at the first annual meeting of stockholders following his or her 75th birthday. On the recommendation of our Nominating Committee, our Board may waive this requirement as to any director if it deems a waiver to be in our best interests and the best interests of our stockholders.

 

Sourcing Director Candidates

 

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. 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.

 

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.

 

 


 

 

 

 

   

ELECTION OF DIRECTORS

 


Ten directors currently serve on our Board and all are standing for reelection at the 2020 Annual Meeting. Under our Fifth Amended and Restated By-Laws, as amended (our “By-Laws”), in uncontested elections (which is the case for the 2020 Annual Meeting), a majority of votes cast is required for the election of each director. The number of votes cast “for” a director nominee must exceed the number of votes cast “against” that nominee. Abstentions and broker non-votes are not counted as votes “for” or “against” a director nominee and, therefore, will have no effect.

 

Each director elected at the Annual Meeting will hold office until the next succeeding annual meeting of stockholders and until his or her successor is duly elected and qualified, or until his or her earlier death, resignation or removal. Each nominee has consented to be named in this Proxy Statement and has agreed to serve as a director if elected, and we expect each nominee to be able to serve if elected. If any nominee is unable or unwilling to accept his or her election or is unavailable to serve for any reason, the persons named as proxies will have authority, according to their judgment, to vote or refrain from voting for such alternate nominee as may be designated by the Board.

 

Following the recommendation of the Nominating Committee, our Board has nominated the ten individuals listed above for election at the 2020 Annual Meeting, all of whom currently serve as directors.

 

 


 

 

 

 

 

Director Skills Matrix

 

In selecting nominees for the Board, our Nominating Committee considers the particular experience, qualifications, attributes and skills of the current Board members and prospective candidates to ensure a variety of skills and qualifications are represented on the Board. The Nominating Committee monitors these represented attributes through the use of a detailed matrix that measures, among other things, skills, tenure, diversity and other attributes.

 

 

 

In addition, a substantial majority of the nominees serve or have served on boards and board committees (including, in many cases, as board or committee chairs) of other public companies, which we believe provides them with essential leadership experience, exposure to corporate governance best practices and substantial knowledge and skills that enhance the functioning of our Board.

 

 


 

 

 

 

 

 

Board Leadership Structure

 

Our Board recognizes that one of its key responsibilities under our By-Laws and Guidelines on Governance 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 CEO 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.

 

Ms. Cafaro has served as CEO and Chairman of the Board 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.

 

Our Guidelines on Governance require that the independent members of our Board annually select one independent director to serve as Presiding Director.

 

 

 

 


 

 

 

Board Meetings

 

Our Board held a total of seven meetings during 2019. 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 2019. We strongly encourage, but do not require, directors to attend our annual meetings of stockholders. All directors who were nominated for reelection at our 2019 Annual Meeting of Stockholders attended that meeting.

 

 


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 chairs all regularly scheduled executive sessions of the Board and all other meetings of the independent directors.

 

 


 

 

 

Board Committees

 

Committee Composition, Leadership Selection and Chair Rotation

 

The Nominating Committee annually reviews and determines the makeup of the Board’s committees and committee chairs, with a view toward balancing the benefits derived from continuity against the benefits derived from diversity of experience and the viewpoints of each committee’s members. Our Guidelines on Governance specify a rigorous annual evaluation process to determine whether to rotate a committee chair after a director’s service as a particular committee chair approximates five years. This evaluation process is to be conducted on a holistic basis and a chair’s years of service on a committee is a single factor in the analysis rather than a sole determinant as to whether a committee’s leadership position should be rotated. Committee chair rotations may occur sooner or later than after a director has reached five years of service as a committee chair.

 

Our Board has five standing committees that perform certain delegated functions for the Board:

 

AUDIT AND COMPLIANCE COMMITTEE

 

 

 


 

 

 

EXECUTIVE COMPENSATION COMMITTEE

 

 

 

 


 

 

 

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

 

 

 

INVESTMENT COMMITTEE

 

 

 

EXECUTIVE 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 these 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.

 

 


 

 

 

 

Director Biographies

 

Below is certain biographical and other information regarding the persons nominated for election as directors, which is based upon statements made or confirmed to us by or on behalf of these nominees, except to the extent certain information appears in our records. Ages shown for all nominees are as of the date of the 2020 Annual Meeting.

 

 

 

 

 

 


 

 

 

 

 


 

 

 

 

 


 

 

 

 

 


 

 

 

 

 


 

 

 

 

 


 

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 CEO, 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 Human Rights Policy reflects our commitment to upholding human dignity and equal opportunity in all of our business functions under principles outlined in the United Nation’s Universal Declaration of Human Rights. Our Vendor Code of Conduct is designed to educate our suppliers about our expectations for ethical and responsible business dealings, including upholding human rights, protecting health and safety and pursuing environmental sustainability. Our expectation is that our vendors will treat people with respect and dignity, encourage diversity, promote equal opportunity for all and create an ethical and inclusive culture.

 

Our Guidelines on Governance, Global Code of Ethics and Business Conduct, Human Rights Policy and Vendor Code of 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, Global Code of Ethics and Business Conduct, Human Rights Policy and Vendor Code of 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 CEO, 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.

 

Voluntary Adoption of Proxy Access

 

In 2017, our Board voluntarily amended and restated our By-Laws to add proxy access rights. Subject to certain requirements, a stockholder, or group of up to 20 stockholders, owning 3% 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.

 

Transactions with Related Persons

 

We did not have any related party transactions during 2019.

 

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.

 

Compensation Committee Interlocks and Insider Participation

 

During the year ended December 31, 2019, Ms. Martino and Messrs. 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.

 

 

 



 

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:

 

// 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, Expenditure and Activity Policy and our Amended and Restated Securities Trading Policy (“Securities Trading Policy”).
// 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.
// Our Nominating Committee focuses on risks related to corporate governance, board effectiveness and succession planning. Our Board has adopted 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 CEO.
// 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 CEO 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.

 

Management Succession Planning

 

Our Board regularly reviews short- and long-term succession plans for the CEO and other senior management positions. In assessing possible CEO 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 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.

 

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 2019, 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:

 

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

 

 

 



// regular review of comparative compensation data to maintain competitive compensation levels in light of our industry, size and performance;
// incentive award opportunities that (i) do not provide minimum guaranteed payouts, (ii) have capped payouts, (iii) are based on a range of performance outcomes and calculated using linear interpolation and (iv) are subject in all cases to the Compensation Board Members’ overall assessment of performance;
// 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;
// equity incentive awards granted for future performance with multi-year vesting schedules/performance periods to enhance retention;
// minimum stock ownership guidelines that align the interests of our executive officers with long-term stockholder interests;
// our recoupment policy enables our Board to “claw back” incentive compensation in the event of a financial restatement; and
// 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 federal 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.

 

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.

 

 

 



 

 

Contacting the Board of Directors

 

Stockholders and other parties interested in communicating directly with our Board or any director on Board-related issues may do so:

 

Communication Letter Email


Communicate directly with the Board on Board-related issues


Board of Directors

c/o Corporate Secretary

Ventas, Inc.

353 North Clark Street, Suite 3300

Chicago, Illinois 60654

bod@ventasreit.com

Communicate with the Presiding Director or the independent directors as a group

Presiding Director

Ventas, Inc.

353 North Clark Street, Suite 3300

Chicago, Illinois 60654

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.

 

NON-EMPLOYEE DIRECTOR COMPENSATION

 

Our Board believes that the compensation paid to our non-employee directors should (i) be competitive with the S&P 500 and our peer group of companies, consisting of publicly traded REITs with similar enterprise values and total assets, as further described in the “Benchmarking and Comparable Companies” section of the Compensation Discussion & Analysis and (ii) enable us to attract and retain individuals of the highest quality to serve as our directors. In addition, the Board believes that a significant portion of non-employee director compensation should align director interests with the long-term interests of our stockholders. Accordingly, non-employee directors receive a combination of cash and equity-based compensation for their services. Each of these components is described below. We also reimburse each non-employee director for travel and other expenses associated with attending Board and committee meetings, director education programs and other Board-related activities. Ms. Cafaro, the only member of the Board employed by us, does not receive compensation for her service as a director.

 

Cash Compensation

 

The cash compensation paid to, or earned by, our non-employee directors in 2019 was comprised of the following three components:

 

// Board retainer: Each non-employee director received an annual retainer of $110,000 (increased from $105,000 as of April 1, 2019) for his or her service as a director. The Presiding Director received an additional retainer of $25,000.
// Committee retainers: Each member (other than the chair) of the Audit, Compensation and Nominating Committees received additional annual retainers of $20,000, $20,000 and $15,000, respectively, for service as a member of such committee. The chair of the Audit, Compensation and Nominating Committees received additional annual retainers of $25,000, $25,000 and $20,000, respectively, for service as the chair of that committee.
// Board and committee meeting fees: Each non-employee director received $1,500 for each Board meeting he or she attended in excess of the eighth Board meeting held during the year, $1,500 for each Audit, Compensation or Nominating Committee meeting he or she attended in excess of the sixth such committee meeting held during the year and $1,500 for each Investment or Executive Committee meeting he or she attended during the year (in each case, including telephonic meetings, unless the meeting was 30 minutes or less).

 

Pursuant to our Nonemployee Directors’ Deferred Stock Compensation Plan (the “Director Deferred Compensation Plan”), non-employee directors may elect to defer receipt of all or a portion of their cash retainer and meeting fees. Deferred fees are credited to each participating director in the form of stock units, based on the fair market value of our common stock on the deferral date. At the prior election of the participating director, dividend equivalents on the stock units are either paid in cash or credited as additional units. Upon termination of a participating director’s service on the Board, or at such later time as he or she has previously designated, the director’s stock unit account is settled in whole shares of our common stock on a one-for-one basis and distributed either in one lump sum or in installments over a period of not more than ten years, at the director’s prior election. Fractional stock units are paid out in cash.

 

 

 

 



 

Equity-Based Compensation

 

The equity-based compensation paid to our non-employee directors in 2019 consisted of shares of restricted stock or restricted stock units, at the director’s prior election, granted pursuant to our 2012 Incentive Plan as follows:

 

// Each year, our non-employee directors receive shares of restricted stock or restricted stock units, at his or her prior election, having an aggregate value equal to $175,000 (increased from $165,000 in 2019).
// Upon initial election or appointment to the Board, a newly elected or appointed non-employee director would have received a number of shares of restricted stock having an aggregate value equal to a pro rata portion of $175,000 (determined by reference to the number of days remaining in the annual grant cycle).
// Shares of restricted stock and restricted stock units are granted to our non-employee directors on our annual meeting date and vest 50% on the subsequent annual meeting date and 50% on the next succeeding annual meeting date.

 

Review of Non-Employee Director Compensation

 

As of May 14, 2019, our Compensation Committee is responsible for annually reviewing the amount and types of compensation to be paid to our non-employee directors and recommending any changes to our non-employee director compensation program for approval by our Board. Our Nominating Committee had responsibility for this function prior to May 14, 2019. As part of its annual review, the responsible committee may consider (i) the director compensation levels of the Company’s peer group of companies and (ii) director compensation levels at competing S&P 500 companies and other relevant compensation and benchmarking information contained in surveys compiled by Nareit, Spencer Stuart or the National Association of Corporate Directors. The responsible committee may also retain an independent compensation consultant to advise it on appropriate director compensation levels.

 

Following review of market data in March 2019, the Nominating Committee recommended and the Board approved two changes to non-employee director compensation for 2019: (i) beginning April 1, 2019, the annual cash retainer was increased from $105,000 to $110,000 and (ii) beginning with the equity grant awarded at the 2019 Annual Meeting, the annual equity retainer was increased from $165,000 to $175,000.

 

In December 2019, the Compensation Committee reviewed market data and received advice from SBCG, the Compensation Committee’s independent compensation consultant, regarding appropriate levels of director compensation for 2020. The Compensation Committee concluded that the 2019 compensation levels were competitive and positioned appropriately and therefore recommended making no changes to the director compensation program for 2020, which the Board approved in early 2020.

 

Minimum Share Ownership Guidelines for Non-Employee Directors

 

Our minimum share ownership guidelines require each non-employee director to maintain a minimum number of shares of our common stock with a value not less than five times the current annual cash retainer (currently $110,000) paid to such director for service on our Board (excluding, among other things, any additional retainer paid for service as a committee member or committee chair or the Presiding Director). Each non-employee director must satisfy the minimum share ownership levels within five years from the date that he or she first becomes subject to the guidelines (or, upon any increase in the annual cash retainer, within five years from the date of such increase to satisfy the guidelines with respect to such incremental amount) and, until such time, must retain 100% of the shares of our common stock or stock units granted to him or her as compensation minus any shares withheld by the director under our share withholding program to pay taxes on the vesting of shares. Compliance with the guidelines is reviewed on July 1 of each year. All of our non-employee directors are currently in compliance with these guidelines, after taking into consideration the transition period for new directors.

 

 

 



 

2019 Non-Employee Director Compensation Table

 

The following table sets forth the compensation awarded or paid to, or earned by, our non-employee directors during 2019:

 

Name

Fees Earned or

Paid in Cash (1)

Stock Awards (2) Total
Melody C. Barnes $  143,750   $  174,978   $  318,728  
Jay M. Gellert 126,750   174,978   301,728  
Richard I. Gilchrist 139,750   174,978   314,728  
Matthew J. Lustig 113,250   174,978   288,228  
Roxanne M. Martino 134,750   174,978   309,728  
Sean P. Nolan (3) 56,168   142,841   199,009  
Walter C. Rakowich 128,750   174,978   303,728  
Robert D. Reed 133,750   174,978   308,728  
James D. Shelton 173,750   174,978   348,728  
     
  (1) The amounts shown in the Fees Earned or Paid in Cash column reflect quarterly retainer and meeting fees described above under “—Cash Compensation.” Of the amounts shown in this column, the following directors elected to defer all or a portion of their retainer and meeting fees pursuant to the Director Deferred Compensation Plan described above and were credited with the following stock units: Mr. Gellert, $126,750 or 1,947 units; Mr. Lustig, $113,250 or 1,737 units; Ms. Martino, $134,750 or 2,070 units; and Mr. Shelton, $86,875 or 1,332 units.
  (2)

The amounts shown in the Stock Awards column represent the full grant date fair value of shares of restricted stock or restricted stock units (excluding stock units credited in lieu of retainer and meeting fees) granted to each non-employee director in 2019, calculated pursuant to FASB guidance regarding fair value provisions for share-based awards. See Note 12 of the Notes to Consolidated Financial Statements included in our 2019 Form 10-K for a discussion of the relevant assumptions used in calculating grant date fair value. Directors are generally entitled to dividends paid on unvested shares of restricted stock and dividend equivalents on vested and unvested restricted stock units.

 

As of December 31, 2019, the aggregate number of unvested shares of restricted stock and restricted stock units and the aggregate number of shares underlying unexercised stock options (all of which are vested) held by each non-employee director were as follows (shown on a post-Spin-off basis): 

 

Name 

Unvested Shares of  

Restricted Stock and Restricted Stock Units

Shares Underlying

Unexercised Vested Stock Options

Melody C. Barnes 4,334 shares 0 shares
Jay M. Gellert 4,334 shares 11,880 shares
Richard I. Gilchrist 4,334 shares 8,934 shares
Matthew J. Lustig 4,334 shares 9,731 shares
Roxanne M. Martino 4,334 shares 0 shares
Sean P. Nolan 2,131 shares 0 shares
Walter C. Rakowich 4,334 shares 0 shares
Robert D. Reed 4,334 shares 11,880 shares
James D. Shelton 4,334 shares 11,880 shares

 

  (3) Mr. Nolan was appointed to the Board on July 26, 2019.

 

 


 

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RATIFICATION OF fiscal 2020 AUDITOR SELECTION

 

Our Board has approved our Audit Committee’s selection of KPMG LLP as our independent registered public accounting firm for fiscal year 2020. KPMG has been our independent registered public accounting firm since July 2014. Although not required by our By-Laws or otherwise, we are submitting the selection of KPMG to our stockholders for ratification because the Board values our stockholders’ views and believes such submission is appropriate as a matter of good corporate practice. The affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting is required to ratify the selection of KPMG as our independent registered public accounting firm for 2020. Abstentions will have the same effect as votes against such proposal, and broker non-votes will have no effect.

 

If our stockholders fail to ratify this selection, it will be considered a recommendation to the Audit Committee and Board to consider the selection of a different firm, and the Audit Committee and Board may select another independent registered public accounting firm without resubmitting the matter to the stockholders. Even if the selection is ratified, the Audit Committee may, in its discretion, select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders. We expect that representatives of KPMG will be present at the Annual Meeting to respond to appropriate questions and have the opportunity to make a statement if they so desire.

 

Our Board recommends that you vote FOR ratification of the selection of KPMG as our independent registered public accounting firm for fiscal year 2020

 

Audit Committee Report

 

Management has primary responsibility for our financial statements and the reporting process, including our system of internal controls, subject to oversight by our Audit Committee on behalf of our Board. In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed with management our audited financial statements for the year ended December 31, 2019, including the quality, not just the acceptability, of our accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

 

Our Audit Committee has reviewed and discussed with the independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, its judgments as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards, including Statement on Auditing Standards No. 16, Communications with Audit Committees, which superseded Statement on Auditing Standards No. 61, as amended and as adopted by the Public Company Accounting Oversight Board (the “PCAOB”) in Rule 3200T. The Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by applicable PCAOB rules regarding the independent registered public accounting firm’s communications with the Audit Committee regarding independence. In addition, our Audit Committee has discussed with the independent registered public accounting firm that firm’s independence from our company and its management, and the Audit Committee has considered the compatibility of non-audit services with the firm’s independence.

 

Our Audit Committee has discussed with the independent registered public accounting firm the overall scope and plans for its audit. The Audit Committee meets regularly with the independent registered public accounting firm, with and without management present, to discuss the results of its examination of our financial statements, its evaluations of our internal controls, and the overall quality of our financial reporting.

 

Our Audit Committee oversees the process for, and ultimately approves, the selection of the independent auditor’s lead engagement partner at the five-year mandatory rotation period. At the Audit Committee’s instruction, KPMG selects candidates to be considered for the lead engagement partner role, who are then interviewed by the Audit Committee Chair and members of our senior management team. After discussing the results of the Audit Committee Chair’s and senior management’s interviews, the remaining members of the Audit Committee interview the candidates. The Audit Committee then considers the appointment and votes on the selection.

 

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2019 for filing with the SEC. The Audit Committee also recommended, and the Board approved, the selection of our independent registered public accounting firm for fiscal year 2020.

 

AUDIT COMMITTEE

 

  Robert D. Reed, Chair  
Melody C. Barnes Sean P. Nolan Walter C. Rakowich

 

 


 

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Audit and Non-Audit Fees

 

KPMG audited our financial statements for the year ended December 31, 2019 and has been our independent registered public accounting firm since July 2014. Fees billed for professional services rendered by KPMG for the years ended December 31, 2019 and 2018 were as follows:

 

Fees 2019 2018
Audit Fees (1) $  4,649,000   $  3,990,000  
Audit-Related Fees (2) 63,000    
Tax Fees    
All Other Fees (3) 62,471   3,000  
Total $  4,774,471   $  3,993,000  

 

  (1) Audit Fees include the aggregate fees billed for professional services rendered by KPMG for the audit of our annual consolidated and entity level financial statements (including debt covenant compliance letters), audit of internal control over financial reporting, review of interim financial statements included in our Quarterly Reports on Form 10-Q, advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements, and work on securities offerings and other filings with the SEC, including comfort letters, consents and comment letters.
  (2) Audit-Related Fees in 2019 relate primarily to consultations on accounting matters.
  (3) All Other Fees in 2019 relate to tax consulting fees. All Other Fees in 2018 relate to annual subscription fees for KPMG’s online technical research site.
     

All audit-related services, tax services and other services provided by KPMG since the date of its engagement have been pre-approved by the Audit Committee in accordance with the Audit Committee’s pre-approval policies described below. The Audit Committee determined that the provision of these services by KPMG did not compromise KPMG’s independence and was consistent with its role as our independent registered public accounting firm.

 

Policy on Pre-Approval of Audit and Permissible Non-Audit Services

 

Consistent with the requirements of the SEC and the PCAOB, our Audit Committee has responsibility for retaining, compensating and overseeing the work of our independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has implemented procedures relating to the pre-approval of all audit and permissible non-audit services performed by the independent registered public accounting firm to ensure that the provision of such services and related fees does not impair the firm’s independence.

 

In accordance with these procedures, the annual audit services and related fees of the independent registered public accounting firm are subject to specific approval by our Audit Committee. Prior to its engagement, which typically occurs during the first quarter of each fiscal year, the independent registered public accounting firm must provide the Audit Committee with an engagement letter outlining the scope of proposed audit services for that year and the related fees. If agreed to by the Audit Committee, the engagement letter will be formally accepted as evidenced by its execution by the Audit Committee chair. The Audit Committee will then review and approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, company structure or other matters.

 

In addition, our Audit Committee may grant pre-approval for those permissible non-audit services that it believes would not impair the independence of the independent registered public accounting firm. However, the Audit Committee may not grant approval for any services categorized by the SEC as “Prohibited Non-Audit Services.” Generally prior to the beginning of each fiscal year, management submits to the Audit Committee a list of certain non-audit services and related fees expected to be rendered by the independent registered public accounting firm during that year. Following review, the Audit Committee pre-approves the non-audit services within each category, and the fees for each category are budgeted. The term of any pre-approved non-audit service is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. Fee levels for all non-audit services to be provided by the independent registered public accounting firm are established periodically by the Audit Committee, and any proposed services exceeding those levels require separate pre-approval by the Audit Committee. Upon request, the independent registered public accounting firm must provide detailed supporting documentation to the Audit Committee regarding the particular services to be provided. To obtain approval of other permissible non-audit services, management must submit to the Audit Committee those non-audit services for which it recommends the Audit Committee engage the independent registered public accounting firm, and both management and the independent registered public accounting firm must confirm to the Audit Committee that each non-audit service for which approval is requested is not a Prohibited Non-Audit Service.

 

Our Chief Accounting Officer is responsible for tracking all fees for pre-approved non-audit services provided by the independent registered public accounting firm, and at each regularly scheduled Audit Committee meeting, management reports on the pre-approved non-audit services provided during the quarter and year-to-date and the fees incurred for such services during such periods.

 

 


 

 

 

 


 

 


 

 

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EXECUTIVE SUMMARY

 

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 2019, who were:

 

Name

Title

Debra A. Cafaro

Chairman and Chief Executive Officer

Robert F. Probst

Executive Vice President and Chief Financial Officer

John D. Cobb

Executive Vice President and Chief Investment Officer

Peter J. Bulgarelli

Executive Vice President, Office; President and Chief Executive Officer, Lillibridge Healthcare Services, Inc.

T. Richard Riney (1)

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

 

(1)

As previously disclosed, on October 15, 2019, Mr. Riney retired from the Company and transitioned to a full-time consultant to the Company in a Senior Advisor role through March 15, 2020. Details regarding his transition are provided below in the “Employment and Severance Agreements with Named Executive Officers” section.

 

 

Long-Term Outperformance and Financial Strength

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2019 Returns to Stockholders

 

After an excellent start through the first three quarters of 2019, recent business challenges limited our TSR compared to our peers and as a result, finished short of our expectations. Nevertheless, we attained 3.4% TSR during 2019 and continued to deliver sustained, superior long-term returns to stockholders.

 

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Strong Pay for Performance Alignment

 

Our strong pay-for-performance linkage, and alignment of our realized executive pay with stockholder outcomes, were clearly demonstrated upon the first vesting event that occurred at the end of 2019 under our forward-looking long-term equity incentive compensation program that we redesigned in response to investor feedback in early 2017. Both formulaic pay inputs, as well as discretionary decisions made by our Compensation Board Members, reinforced that linkage.

 

Although our TSR was strong in 11 out of the 12 quarters and we attained positive 2.5% three-year compound annual TSR during the three-year period ending December 31, 2019, our stock price performance fell meaningfully in the last quarter of 2019, which had a material impact on our executive compensation results as well as our 2020 executive compensation decisions, as outlined below.

 

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Forfeiture of 2017-2019 pRSUs & Dividend Equivalents

 

Our carefully crafted compensation plan is working as intended to align our Named Executive Officers’ realized compensation with the returns delivered to stockholders over the same period. The primary performance metrics for these first pRSU awards were relative TSR compared to two different peer group indices, both of which finished below threshold and resulted in more than 70% of the awards paying out at zero.

 

Collectively, our three current Named Executive Officers who received 2017 pRSU awards therefore forfeited over $6.2 million of equity compensation, comprised of $5,464,658 equity ($62.22 pRSU grant date stock price multiplied by the number of forfeited shares linked to relative TSR goals awarded at the target level in 2017) and $760,151 related dividend equivalents, as detailed in the table below. More than $3.75 million of the total equity and dividend equivalent forfeiture amount is attributed to Ms. Cafaro.

 

 Name

Forfeited TSR pRSUs

(Total 2017 Target)

Forfeited pRSUs

(Value at $62.22 Grant Price)

Dividend Equivalent

Forfeiture

Total Forfeiture

Value

Debra A. Cafaro

53,107

$ 3,304,318

$ 459,641

$ 3,763,959

Robert F. Probst

17,503

1,089,037

151,488

1,240,525

John D. Cobb

17,218

1,071,304

149,022

1,220,326

Total

87,828

$ 5,464,658

$ 760,151

$ 6,224,810

 

The forfeiture amounts above are not reflected in the 2019 Summary Compensation Table in this Proxy Statement. SEC rules require us to report the grant date fair value of equity awards at the target level, regardless of actual award attainment levels or realized value.

 

Discretionary Actions Taken to Align Pay and Performance

 

In addition to significant reductions to realized 2019 equity pay for the CEO and other Named Executive Officers due to the forfeiture of a majority of the 2017 pRSUs and related dividend equivalents as detailed above, our Compensation Board Members implemented several actions in recognition of the end-of-year decline in our stock price and in response to 2020 investor feedback regarding pay and performance alignment.

 

Negative Discretion Exercised Regarding CEO Annual Cash Incentive

 

The Compensation Board Members applied negative discretion to materially reduce the CEO’s 2019 annual cash incentive award, to below the target level, despite above-target performance on both her quantitative and qualitative 2019 annual goals. This resulted in a 50% reduction in her earned annual cash incentive award, which reduced her payout by nearly $1.8 million

 

Specifically, based upon actual 2019 annual cash incentive award performance with respect to the pre-established quantitative goals and attainment at 90% of the maximum level with respect to our CEO’s qualitative individual performance goals, as measured by our Compensation Board Members, and reflecting Ms. Cafaro’s outstanding long-term performance and current value to the Company, her short-term annual cash incentive award payout would have been $3,579,263, or 166% of her target award and 92% of her maximum award for fiscal 2019 performance.  

 

However, as a result of Company’s three-year relative TSR underperformance that primarily occurred in the final quarter of 2019, and in order to demonstrate even greater alignment between CEO pay and results for stockholders, the Compensation Board Members exercised negative discretion with respect to our CEO’s attainment of both the quantitative and qualitative performance goals under the 2019 annual cash incentive award, reducing her 2019 payout by 50% overall, to $1,789,631, which is 83% of her target award and 46% of her maximum award. 

 

This 2019 payout, made as the result of the exercise of negative discretion by the Compensation Board Members, is also $1.6 million less than the average short-term incentive payout received by the CEO the preceding three-year period, and is her lowest short-term incentive payout since 2008.

 

No 2020 Merit Increases for Top Three Named Executive Officers

 

In addition, our Compensation Board Members demonstrated accountability for TSR performance by approving zero merit increases to all 2020 compensation components for our three highest-paid Named Executive Officers, including keeping Ms. Cafaro’s base salary at the same level as it has been since 2015.

 

Enhanced 2020 Short-Term and Long-Term Metric Selection and Goal Setting

 

Finally, to align executive pay with attainment of our most critical objectives and in response to investor feedback, our Compensation Board Members also made several stockholder-focused changes to the metrics, goals and weightings of the 2020 annual cash incentive and long-term equity incentive compensation plans, consistent with our strategic plan.

 

Changes to the performance metrics and weightings for the 2020 annual cash incentive award program as compared to 2019 are as follows: (i) eliminated the Fixed Charge Coverage metric, (ii) eliminated the Research & Innovation

 

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Development Growth metric, (iii) reduced weighting of the Normalized FFO per Share metric from 40% to 30%, (iv) added Liquidity management metric at 15% weighting, (v) added Development Investment metric at 10% weighting to incent timely progress on the Company’s R&I development pipeline and (vi) added a Net Debt to Adjusted Pro Forma EBITDA metric at 10% weighting to ensure the Company maintains financial strength and flexibility.

 

Performance metrics and weightings for the 2020 pRSUs as compared to 2019: (i) retained the same two relative TSR metrics at identical weighting and performance levels, meaning that greater than 70% of the pRSU value for our Named Executive Officers continues to be tied to rigorous relative TSR metrics, (ii) eliminated the three-year Reported Net Debt to Adjusted Pro Forma EBITDA metric (one-year metric was added to the annual cash incentive plan), (iii) added a three-year Research & Innovation Pipeline Openings metric at 11.7% weighting for the CEO and 10% weighting for all other Named Executive Officers to incent on-time delivery of these development projects and (iv) included quantitative Gender Balance metric focused on improving the Company’s representation of women employees was added at 6.9% weighting for the CEO and 6% weighting for all other Named Executive Officers to incent ESG performance.

 

All the 2019 and 2020 responsive actions and improvements to our executive compensation program are further detailed below in the “Proactive Investor Outreach” section.

 

CEO Pay Structure Emphasizes Variable Pay

 

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CEO Pay Alignment with TSR

 

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This graph illustrates our long-term pay-for-performance alignment by comparing our CEO’s Total Direct Compensation to our TSR performance (indexed to a 2014 base year) for each of the past five years. “Total Direct Compensation” includes, for the applicable year, base salary, earned annual cash incentive awards, the value of equity incentive awards and “All Other Compensation” as reported in the Summary Compensation Table. This graph differs from compensation reported in the 2019 Summary Compensation Table in the following respects:

 

//

For 2014-2016, 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.

//

For 2017-2019, when our current forward-looking long-term equity incentive plan went into effect, we report the grant date fair value of time-based RSUs and pRSUs (approximating target level of performance) granted in 2017-2019 that may be earned, if at all, based on the Company’s performance relative to three-year goals measured during the applicable performance periods. Actual payouts occur in the year following the end of each applicable performance period and range from 0% - 220% of the target value.

//

The 2019 figure depicts the CEO’s $3,763,959 realized reduction in pay resulting from earning 0 pRSUs under the TSR metrics upon completion of the first full 2017-2019 pRSU performance period, meaning that our CEO received zero payout with respect to greater than 70% of the total award. This $3,763,959 figure is comprised of $3,304,318 equity ($62.22 pRSU grant date stock price multiplied by 53,107 forfeited shares linked to relative TSR goals at the target level in 2017) and $459,641 related dividend equivalents. These forfeiture amounts are not reflected in the 2019 Summary Compensation Table in this Proxy Statement. SEC reporting rules require us to report the grant date fair value of equity awards at the target level, regardless of actual award attainment levels or realized value.

//

The 2017 figure excludes a one-time time-based RSU transition award received by our CEO, which was designed to partially mitigate the impact of a reduction in the realized pay for our CEO in 2018 and 2019 resulting from the transition from a backward-looking long-term equity incentive plan to a stockholder-focused forward-looking plan because the new forward-looking award did not pay out, if at all, until 2020 and later. This award is excluded because it was one-time in nature, has not recurred and the Compensation Committee does not view such awards as a continuing feature of the long-term equity incentive plan.

 

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Compensation Policies and Practices—Good Governance

 

 

 

 



 

 

Executive Compensation Opportunities, Decisions and Outcomes

 

When setting executive pay opportunities and determining ultimate payouts each year, our Compensation Board Members engage in a robust process of peer group selection, benchmarking, solicitation and implementation of stockholder feedback and rigorous evaluation of Company and individual performance. Our 2019-2020 executive compensation processes, decisions and realized pay outcomes met our two primary goals of strong pay and performance alignment and responsiveness to stockholder feedback.

 

Compensation Element 2019 Compensation Opportunities
CEO Other Named Executive Officers
Base Salary

ü No merit increase

Ø   Flat since 2015

ü Market-based 1-4% merit increases

Ø   Approved December 2018

Annual Cash Incentive

ü No increase in opportunities

ü No increase in opportunities

Long-Term Equity

ü Performance-based component increased from 60% to 70%

Ø   Time-based equity opportunity reduced $689,500

ü Threshold opportunity decreased 9%, target and maximum opportunities increased 6% and 12%, respectively

Ø   Changes largely driven by stockholder-focused decision to tie a larger portion of CEO’s long-term equity opportunity to Company performance

Ø   Company must maintain superior three-year performance relative to rigorous, 100% objective 2019 pRSU goals for CEO to benefit from these structural changes, rewarding outperformance in line with the Company’s pay-for-performance culture

ü No opportunity increases for Messrs. Probst, Cobb and Riney

ü Mr. Bulgarelli: 25% increase to threshold, target and maximum opportunities, inclusive of his base salary adjustment

Ø   Approved due to his excellent 2018 performance and to bring his total compensation opportunity closer to market median

 

 

Compensation Element 2019 Compensation Decisions and Outcomes
CEO Other Named Executive Officers
Annual Cash Incentive

ü Negative discretion reduced quantitative and qualitative goal achievement payouts by 50%, resulting in payouts at 83% of her target opportunity

Ø   Lowest bonus received since 2008

Ø   Compensation Board Members considered the CEO’s delivery of 22% compound annual TSR, her recognition for leadership and performance, and her value to the Company, balanced with an intention to ensure alignment and accountability, as well as respond to stockholder feedback

ü Earned between 123% to 128% of their target award opportunities
2017 pRSUs

ü Earned 59% of target award

Ø   Both relative TSR metrics (comprising > 70% of award opportunity) finished below threshold & paid out at zero

Ø   Forfeited more than $3.75 million of equity compensation, inclusive of dividend equivalents

ü Messrs. Probst and Cobb: earned 59% of target award

Ø   Both relative TSR metrics (comprising > 70% of award opportunity) finished below threshold & paid out at zero

Ø   Combined to forfeit nearly $2.5 million of equity compensation, inclusive of dividend equivalents

ü Mr. Bulgarelli: not eligible to earn 2017 pRSUs because he commenced employment in 2018

ü Mr. Riney: prorated pRSU payout upon his retirement

 

Compensation Element 2020 Compensation Opportunities
CEO Other Named Executive Officers
Base Salary

ü No merit increase

Ø   Flat since 2015

 

ü No merit increases for Messrs. Probst and Cobb

ü Mr. Bulgarelli: 7% market-based merit increase

Ø   Approved due to excellent Office performance, expansion of responsibilities, growing Office portfolio and to bring his total compensation opportunity closer to market median

Annual Cash Incentive

ü No increase in opportunities

ü No increase in opportunities

Long-Term Equity

ü No increase in opportunities

ü No opportunity increases for Messrs. Probst, Cobb and Riney

ü Mr. Bulgarelli: 25% increase to threshold, target and maximum opportunities, inclusive of his base salary adjustment

Ø   Approved due to excellent Office performance, expansion of responsibilities, growing Office portfolio and to bring his total compensation opportunity closer to market median

 



 

Executive Compensation Philosophy

 

Our executive compensation philosophy is to closely link compensation to performance by emphasizing performance-based incentive compensation over fixed cash compensation, so that the vast majority of total direct compensation is variable and not guaranteed. Our executive compensation program is designed to attract, retain and motivate talented executives, create alignment with stockholders and to reward executives for the achievement of pre-established company objectives combined with tailored individual goals, consistent with our strategic plan.

 

Objectives of Our Compensation Program

 

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

 

// attract, retain and motivate talented executives;
// reward performance that meets or exceeds pre-established company and tailored individual goals consistent with our strategic plan, while maintaining alignment with stockholders;
// provide balanced incentives that discourage excessive risk-taking;
// retain sufficient flexibility to permit our executive officers to manage risk and adjust appropriately to meet rapidly changing market and business conditions;
// evaluate performance by balancing consideration of goals 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;
// encourage executives to become and remain long-term stockholders of our company; and
// 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 against key strategic, financial and operating goals that create long-term stockholder value.

 

Benchmarking and Comparable Companies

 

For 2019 benchmarking purposes, SBCG 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, SBCG 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 2019.

 

In determining 2019 compensation targets for our Named Executive Officers, our Compensation Committee, in consultation with SBCG, 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 2019 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. As in 2018, the Compensation Committee set the peer group in 2019 by generally including all publicly traded REITs with enterprise values of more than $20 billion and having total assets of more than $10 billion, irrespective of direct business fit. As a result, the peer group did not change from 2018 to 2019.

 

The Compensation Committee believes this approach results in a 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.


2019 Comparable Companies

 

 

 

 

2020 Comparable Companies

 

In September 2019, the Compensation Committee and SBCG examined the 2019 peer group and, using the same screening criteria as utilized in setting the 2019 Comparable Companies, approved the removal of GGP Inc. and SL Green Realty Group, Inc. from the peer group for purposes of setting 2020 compensation. GGP Inc. was removed from the peer group because it was acquired by Brookfield Property REIT Inc. and current pay data related to GGP Inc. is no longer available. SL Green Realty Group, Inc. was removed because its enterprise value had fallen below our Compensation Committee’s peer group screening criteria for consecutive years. The Compensation Committee determined that the remaining 16 Comparable Companies identified above continued to be an appropriate mix of companies comparable to us in terms of size and talent.

 

Proactive Investor Outreach

 

Investor outreach and maintaining open lines of communication with our stockholders are critical components of our executive compensation and corporate governance programs. We regularly solicit feedback from and engage in robust discussions with our investors in an effort to ensure we are being responsive to our stockholders and keeping abreast of best practices.

 

Recently, we gained valuable insight from engaging with our stockholders on a consistent basis before, during and after we redesigned our long-term equity incentive compensation plan in 2017. These efforts are detailed on the following pages.

 

 



 

 

 

 

 



 

 

 

2018-2019 Investor Outreach and Responsiveness to Constructive Feedback

 

Together with our Compensation Committee Chair, in late 2018 – early 2019 we continued our extensive stockholder outreach program to 40 of our largest investors (collectively holding ~65% of our shares). We received varied and diverse constructive feedback from our investors during this outreach program. This feedback and the responsive changes we made to our 2019 executive compensation program are detailed below.

 

 

 


2019 Say on Pay Vote

 

Following implementation of the changes to our executive compensation program in early 2019 as detailed above and in our 2019 Proxy Statement, we received support from greater than 85% of our stockholders with respect to our 2019 advisory vote on our Named Executive Officers’ compensation. Accordingly, we did not make further changes to the structure of our executive compensation program as a direct result of the outcome of our 2019 advisory vote on our Named Executive Officers’ compensation.

 

However, we did take further responsive action to our executive compensation program following our late 2019 – early 2020 investor outreach program, as detailed below.

 

 


 

 

2019-2020 Investor Outreach and Responsiveness to Constructive Feedback

 

Together with our Compensation Committee Chairman, in late 2019 - early 2020 we continued our extensive stockholder outreach program to 50 of our largest investors (collectively holding ~71% of our shares). We received a range of constructive feedback from our investors during this outreach program. The central theme conveyed to us was investors’ desire to see us achieve pay and performance alignment. This specific feedback and our responsive actions taken are detailed below.

 

 

 

 


 

 

 

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 that vest based on three-year future performance. Ms. Cafaro’s structure reflects a heavy weight on long-term equity compensation because our Compensation Board Members believe that, due to her leadership role as our CEO, her compensation structure should reflect significant alignment with our stockholders.

 

Elements of Our Compensation Program

 

For 2019, the elements of compensation provided to our executive officers remained unchanged: base salary; annual cash incentive compensation; long-term equity incentive compensation; and limited 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 base salaries for our Named Executive Officers, our Compensation Board Members analyzed base salary information of the Comparable Companies contained in a report prepared by SBCG. Although the Compensation Board Members periodically consider information from REIT industry and other compensation surveys, they place 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.

 

2019 Base Salary   2020 Base Salary
As part of a continuing effort to maintain our Named Executive Officers’ total direct compensation opportunities approximately at the median of our peer group, our Compensation Board Members approved 1-4% merit increases to the 2019 base salaries of our Named Executive Officers other than Ms. Cafaro, as listed in the table below.   Our Compensation Board Members did not approve 2020 base salary increases for any of our Named Executive Officers other than Mr. Bulgarelli, who received a 7% base salary increase due to the Company’s excellent Office performance, expansion of his responsibilities, our growing Office portfolio and to bring his total compensation opportunity closer to market median.

No merit increases for top three Named Executive Officers in 2020

// Ms. Cafaro’s base salary flat since 2015

 

Named Executive Officer   2018 Base Salary 2019 Base Salary 2020 Base Salary
Debra A. Cafaro $ 1,075,000   $ 1,075,000   $ 1,075,000  
Robert F. Probst 627,300   646,119   646,119  
John D. Cobb 626,175   644,960   644,960  
Peter J. Bulgarelli 450,000   468,000   500,760  
T. Richard Riney (1) 571,200   576,912   576,912  

 

(1) Mr. Riney’s base salary remained at the same level from the time he transitioned to a consulting role following his October 15, 2019 retirement from the Company until March 15, 2020, the final day of his consulting term with the Company.

 

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 contributions.

 

Annual Cash Incentive Compensation

 

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 metrics, goals and weightings and an award opportunity range (expressed as multiples of base salary at each applicable level of performance) for each Named Executive Officer. Our quantitative goal targets (comprising 65% of the award opportunity), tailored individual goals (comprising 35% of the award opportunity) and achievement thereunder are described below in the “2019 Annual Cash Incentive Award Metrics, Goals and Results” section. The resulting payouts to our Named Executive Officers, including details regarding our

 

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Compensation Board Members’ use of negative discretion to reduce our CEO’s 2019 annual cash incentive award by 50% overall, are contained in the “Earned 2019 Annual Cash Incentive Awards” section below.

 

Annual Cash Incentive Award Opportunities

 

2019 Opportunities   2020 Opportunities
In December 2018 and January 2019, our Compensation Board Members approved the 2019 annual cash incentive award opportunities for our Named Executive Officers. The 2019 annual cash incentive award opportunities remained unchanged from 2018 opportunities (as a percentage of base salary) for all Named Executive Officers.   In January 2020, our Compensation Board Members approved the 2020 annual cash incentive award opportunities for our Named Executive Officers. The 2020 annual cash incentive award opportunities remained unchanged from 2019 opportunities (as a percentage of base salary) for all eligible Named Executive Officers.
No opportunity increases for any Named Executive Officers in 2019 and 2020

 

Named Executive Officer 2018 Total Annual Cash Incentive Opportunity 2019 Total Annual Cash Incentive Opportunity 2020 Total Annual Cash Incentive Opportunity
Threshold Target Maximum Threshold Target Maximum Threshold Target Maximum
Debra A. Cafaro $1,290,000 $2,150,000 $3,870,000 $1,290,000 $2,150,000 $3,870,000 $1,290,000 $2,150,000 $3,870,000
Robert F. Probst 784,125 1,097,775 1,568,250 807,649 1,130,708 1,615,298 807,649 1,130,708 1,615,298
John D. Cobb 782,719 1,095,806 1,565,438 806,200 1,128,680 1,612,400 806,200 1,128,680 1,612,400
Peter J. Bulgarelli 450,000 675,000 900,000 468,000 702,000 936,000 500,760 751,140 1,001,520
T. Richard Riney (1) 714,000 999,600 1,428,000 721,140 1,009,596 1,442,280

 

(1) Mr. Riney was not eligible to receive an annual cash incentive award in 2020 due to his retirement from the Company.

 

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 CEO’s compensation should be more strongly aligned with stockholders than our other executive officers. At these levels, the Compensation Board Members considered each Named Executive Officer’s annual cash incentive award opportunities to be within the competitive range given each individual’s unique skills, expertise and contributions.

 

2019 Annual Cash Incentive Award Metrics, Goals and Results


Below is a summary of the annual cash incentive program metrics and goals approved by our Compensation Board Members, the relative weighting for each metric, the reasons why we consider each performance goal to be an important component of our pay-for-performance philosophy, how the goals were set and our results with respect to those goals. Consistent with our compensation philosophy, the 2019 annual cash incentive program metrics 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 goals 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.

 

 

 

 



 

 

Normalized FFO Per Share

 

Metric   Achievement Goal   Weighting

Normalized FFO per share,

excluding non-cash items

(for the year ended December 31, 2019)

  Threshold $3.75  

40%

(18% for Mr. Bulgarelli)

  Target $3.80  
  Maximum $3.85  

 

Why does this metric 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.

 

How were the goals set? Though these goals represented a slight reduction from 2018 Normalized FFO per share, the goals aligned with our public guidance and the Compensation Committee believed they were appropriately challenging in the current market environment for healthcare REITs. In setting the threshold, target and maximum performance levels, the Compensation 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 an appropriate risk profile by balancing leverage and optimizing performance through dispositions, development and redevelopment and investing in our R&I pipeline.

 

Result: Achieved Maximum Performance. Our 2019 Normalized FFO per diluted share was $3.85. The variance between our actual results and our pre-established goals was largely due to actions led by our Named Executive Officers, including excellent performance in the Office, Healthcare and Canadian seniors housing segments, investment activity and successful capital markets execution.


Fixed Charge Coverage

 

Metric   Achievement Goal   Weighting

Fixed charge coverage ratio

(as of December 31, 2019)

  Threshold 4.00x  

10%

(5% for Mr. Bulgarelli)

  Target 4.25x  
  Maximum 4.50x  

 

Why does this metric 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 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.

 

How were the goals set? In a rising interest rate environment, which was the case when this goal was set in January 2019, prior year fixed charge coverage goals are more difficult to achieve, meaning that keeping fixed charge coverage goals at the same level year-over-year would have resulted in increased goal difficulty. In addition to this inherent tightening of the goals and in light of our history of strong fixed charge coverage performance, we further increased the difficulty of our 2019 fixed charge coverage goals by 25 basis points at each of the threshold, target and maximum levels relative to our 2018 goals in order to further enhance their rigor. As a result, our fixed charge coverage goals have been increased by 50 total basis points at each of the threshold, target and maximum levels over the past two years.

 

Result: Achieved Slightly Above Target Performance. As of December 31, 2019, our fixed charge coverage ratio was 4.26x. 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 as we financed nearly $4 billion investments and commitments in 2019, total debt reduction, effective management of sources and uses, hedging strategies and disciplined and consistent balance sheet management.

 

 


 

 

Research & Innovation Development Growth

 

Metric   Achievement Goal   Weighting

Committed Research &

Innovation projects

(through December 31, 2019, expressed

as total estimated project costs)

  Threshold $200 million  

15%

(7% for Mr. Bulgarelli)

  Target $400 million  
  Maximum $800 million  

 

Why does this metric matter? Research & Innovation (“R&I”) development growth replaced Debt Reduction/Refinancing as a metric for 2019 because a primary focus for our business in 2019 was building out and executing on our R&I development pipeline, an area where the Company is building a business that produces strong risk-adjusted returns partnering with the nation’s leading research universities.

 

How were the goals set? In early 2019, we announced an exciting university-based R&I development pipeline exceeding $1.5 billion. This goal was based on an evaluation of the opportunity set comprising the R&I pipeline and the actionability and timing of each project. In light of the importance of building the R&I business to the enterprise, the maximum goal was set at $800 million, which was determined to be appropriately challenging because it required efficient execution and commitment to a majority of the announced pipeline in 2019.

 

Result: Achieved Maximum Performance. As of December 31, 2019, we committed to over $800 million of R&I development projects affiliated with the nation’s leading research universities. The variance between our actual results and our pre-established goals was largely due to actions led by our Named Executive Officers, including driving pre-development, design, permitting, leasing, financing, environmental and construction activities.

 

 

Office Financial Performance

 

Office Metric (1)   Achievement Goal   Weighting
    Metric Component Total Opportunity

Same-Store Cash NOI Growth

(for the year ended December 31, 2019)

  Threshold 1.4%   25%

35%

(Mr. Bulgarelli only)

  Target 2.1%  
  Maximum 2.8%  

GAAP NOI

(for the year ended December 31, 2019)

  Threshold $536 million   25%
  Target $543 million  
  Maximum $550 million  

Same-Store Occupancy

(for the year ended December 31, 2019)

  Threshold 91.4%   20%
  Target 92.0%  
  Maximum 92.6%  

Tenant Satisfaction

(for the year ended December 31, 2019)

  Threshold 3.97   15%
  Target 4.08  
  Maximum 4.19  

FAD Capital Expenditures (2)

(for the year ended December 31, 2019)

  Threshold $61 million   15%
  Target $65 million  
  Maximum $69 million  

 

(1) Certain of these goals were established for certain pools of assets and used certain definitions in place on January 1, 2019; they may differ from other reported same-store pools of assets based on asset sales and intended sales, and/or market definitions.
(2) Payout is zero if FAD Capital Expenditures is below $61 million or above $69 million, provided that an equitable adjustment may be made if FAD Capital Expenditures is above $69 million as a result of Same-Store Occupancy performing above the target level.

 

Why do these metrics matter? These metrics are important measures of the Office segment’s ability to generate internal organic growth and maximize the productivity of these assets and represent a combination of near-term metrics tied to the overall enterprise performance expectations for 2019 (Same-Store Cash NOI, GAAP NOI, Same-Store Occupancy) and long-term metrics geared toward future performance (Tenant Satisfaction, FAD Capital Expenditures).

 

How were the goals set? The goals for each financial metric are tied to the range of overall enterprise performance expectations for the Office segment in 2019.

 

Result: Achieved Between Target and Maximum Performance on a Combined Basis. As of December 31, 2019, the Office business segment achieved (i) same-store cash NOI growth of 2.6%, which was between the target and maximum levels, (ii) GAAP NOI of $559 million, which was at the maximum level, (iii) same-store occupancy of 92.0%, which was at the target level, (iv) tenant satisfaction of 4.18, which was between the target and maximum levels and (v) FAD capital expenditures of $67 million, which was between the target and maximum levels.

 

(GRAPHIC)


 

 

 

 

 

Individual Performance

 

Metric   Goals   Weighting
Individual performance under management objectives established for each Named Executive Officer   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   35%
   
   

 

Why does this metric 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.

 

How was goal achievement evaluated? Our Compensation Board Members first considered the Company’s achievement of its significant strategic, financial and operating goals for 2019:

 

Strategic, Financial and Operating Performance

 

VALUE-CREATING INVESTMENTS
  // Made attractive investments and commitments of nearly $4 billion, including our LGM platform investment
  // Nearly $1 billion of Research & Innovation developments with leading research universities
  // Provided $490 million financing at an initial yield of 9%
EFFECTIVE AND EFFICIENT CAPITAL MARKETS EXECUTION
  // First healthcare REIT to establish a Commercial Paper (CP) Program
  // Proactively enhanced near-term debt maturity profile, resulting in negligible maturities through 2021 (excluding CP and revolver) and improved cost of debt
  // Opportunistic bond issuances to retire shorter term, higher rate bonds
  // Effectively financed Canadian investments through excellent bank and bond execution
  // Expanded our strong liquidity position
  // Maintained robust credit rating
FINANCIAL PERFORMANCE
  // Delivered strong normalized FFO and paid an increased dividend to stockholders
  // Strong Office and NNN Healthcare portfolio performance, providing ballast to challenging conditions in our senior housing portfolio
SUSTAINABILITY, VALUES, REPUTATION AND INDUSTRY LEADERSHIP
  // Strengthened our Environmental, Social and Governance (ESG) commitment by organizing our strategy around three key pillars–People, Performance and Planet–and publishing clear ESG goals aligned to global best practices and the United Nations Sustainability Development Goals
  // Retained and enhanced our industry leadership position in all ESG areas, earning numerous prestigious awards and recognition
  // Demonstrated robust commitment to diversity and inclusion principles
  // Continued to invest in our industry-leading portfolio of energy-efficient buildings
  // Published our second Corporate Sustainability Report in accordance with GRI, the gold standard for sustainability reporting
  // Accelerated our corporate philanthropic efforts

 

Next, our Compensation Board Members carefully evaluated our Named Executive Officers’ (i) individual efforts and contributions toward attaining the Company’s 2019 strategic goals and (ii) achievement of his or her tailored 2019 individual objectives:

 

 


 

 

 

 

Name Accomplishments
Debra A.
Cafaro
// Delivered strong financial results, including Normalized FFO of $3.85 per share, at the high end of our initially introduced guidance, benefiting from a diverse portfolio led by our strong Office and NNN Healthcare portfolio performance, robust investment activity and excellent capital markets execution.
  // Drove delivery of 3.4% TSR in 2019 despite challenging market conditions in the seniors housing segment.
  //

Demonstrated leadership, commitment and excellence in environmental, social and governance matters: 

a.   Publication of our second annual Corporate Sustainability Report, reported in compliance with GRI standards. 

b.   First-time inclusion in the Dow Jones Sustainability World Index (top 10% of industry). 

c.   Receipt of the 2019 Health Care “Leader in the Light” Award from Nareit (third consecutive year). 

d.   First-time inclusion in the Bloomberg Gender Equality Index. 

e.   Signatory to the United Nations Women’s Empowerment Principles. 

f.    #1 ranking among listed healthcare REITs in the GRESB Real Estate Assessment on Sustainability. 

g.   Placement and top 10 status on the S&P Dow Jones Green REIT Index and FTSE EPRA Nareit Green Index (two new green REIT indices). 

h.   Continued to build an industry-leading portfolio of 84 ENERGY STAR Certified buildings (earned in current or prior years). Ventas earned >50% of the ENERGY STAR certifications for senior care in 2019. Ventas has 45 LEED Certified buildings, which includes eight active developments with a total project cost of approximately $1.1 billion pursuing LEED Certification. 

i.    Honored as a Corporate Champion by the Women’s Forum of New York and identified as a “Winning Company” by 2020 Women on Boards for our representation of females on our Board. 

j.    Increased philanthropic efforts, totaling more than $10 million, including (i) $9 million donation to support K-8 education in Philadelphia, (ii) donations to 30 organizations selected by Company employees and (iii) renewed ongoing marquee relationships with the Greater Chicago Food Depository and Elderserve. 

k.   Increased diversity education and expanded professional development opportunities. 

  //

Earned numerous prestigious recognitions: 

a.   Named in Harvard Business Review’s CEO 100 (rank #29, and one of only 14 named six consecutive years). 

b.   100 Most Influential People in Healthcare by Modern Healthcare (fifth consecutive year). 

c.   Elected as Chair of the Economic Club of Chicago. 

d.   Inducted to the American Seniors Housing Association (ASHA) Senior Living Hall of Fame. 

  // Balanced short- and long-term objectives, and commenced several initiatives designed to position the company for an improving senior housing environment and delivery of Research & Innovation projects.
  //

Supported investment team in nearly $4 billion investments and commitments within established framework: 

a.   LGM platform investment added an outstanding Canadian senior housing portfolio and a new platform for growth in the attractive Quebec market. 

b.   Five outstanding Research & Innovation development projects closed/announced with top tier research universities. 

c.   Highly structured and high-yielding financing. 

d.   Entry into Cambridge, MA life sciences market. 

  //

Supported finance team in effective and efficient capital markets activities and enhanced financial strength and liquidity: 

a.   Established $1 billion commercial paper program. 

b.   Proactively enhanced near-term debt maturity profile, resulting in negligible maturities through 2021 (excluding CP and revolver) and improved cost of debt to 3.5% at year end. 

c.   $1.4 billion bond issuances, resulting in eight year weighted average maturities for senior notes. 

d.   Effectively financed our Canadian investment through combination of attractive bond issuance, equity capital and assumption of low-cost debt, thereby managing market and currency risks. 

e.   Enhanced strong liquidity position to $2.6 billion at year end. 

f.    4.26x fixed charge coverage. 

g.   BBB+ or equivalent credit rating from three agencies. 

  // Sustained, enhanced and expanded relationships with key partners, operators and the nation’s leading research universities.
  // Retained and motivated experienced team, including recruitment and hiring of dynamic new seniors housing leader and diverse General Counsel. Emphasized performance, positive culture, excellence, team cohesion, integrity, forward focus on risk identification and management and improvement actions.
Robert F.
Probst
// Drove the delivery of strong financial results, including delivery of Normalized FFO of $3.85 per share, at the high end of our initially introduced guidance.
  //

Executed effective and efficient capital markets strategy, enhancing our financial strength and robust liquidity position: 

a.   Established $1 billion commercial paper program (first among healthcare REITs). 

b.   Proactively enhanced near-term debt maturity profile, resulting in negligible maturities through 2021 (excluding CP and revolver) and improved cost of debt to 3.5% at year end. 

c.   Expertly addressed interest rate risk through our $1.4 billion bond issuances to retire shorter term, higher rate bonds, resulting in eight year weighted average maturities for senior notes. 

d.   Effectively managed currency and market risks by financing our LGM platform investment through a CAD$900 million bond issuance at 2.7% and a CAD$500 million unsecured bank loan. 

e.   Enhanced strong liquidity position to $2.6 billion at year end. 

f.    4.26x fixed charge coverage. 

g.   BBB+ or equivalent credit rating from three agencies. 

  // Recognized as the 2019 national Public Company CFO of the Year by Financial Executives International.
  // Continued investment in data analytics to improve insight generation and decision-making capabilities.
  // Financed nearly $4 billion investments and commitments and integrated enhanced risk management function. Developed key liquidity and development frameworks.
  // Entry into 12 lease modifications and operator transitions in our seniors housing and NNN leased portfolios.
  // Proactive outreach to and investment in relationships with analysts, investors, bankers and lenders.
  // Recruited and retained top talent in Finance, Accounting, Investor Relations and IT departments, including recruitment of key diverse leaders.

 

 


 

 

 

 

John D.
Cobb
//

Led nearly $4 billion investments and commitments expected to deliver a blended 6.4% stabilized cash yield, including: 

a.   LGM platform investment, which added an outstanding Canadian senior housing portfolio and provides a new platform for growth in the attractive Quebec market with an established leader. 

b.   Provided $490 million financing at an initial yield of 9%. 

c.   Entered cluster market life science segment through $128 million acquisition of Class A science building in Cambridge, MA. 

  // Closed/announced five outstanding Research & Innovation development projects with top tier research universities totaling nearly $1 billion and made significant progress on remainder of our $1.5 billion near-term Research & Innovation pipeline.
  // Oversaw evaluation of greater than $33 billion in potential investments and enhanced collaboration between cross-functional teams.
  // Implemented processes to enhance data analytics evaluation.
  // Closed 21 disposition and loan repayment transactions, generating $440 million proceeds.
  // Retained and enhanced productive Investments and Construction teams, thereby improving our development capabilities and driving accountability.
  // Led various enterprise-wide initiatives, including evaluation of office space and strategy.
Peter J.
Bulgarelli
// Led delivery of strong same-store cash NOI growth of 2.6% and GAAP NOI of $559 million for our growing Office segment, both of which exceed the top range of our guidance.
  // Upgraded capital allocation capabilities through implementation of portfolio segmentation tool to evaluate each asset. Improved customer satisfaction and leasing focus, including national client program.
  // Delivered enhanced customer satisfaction by developing unique operating plan for each asset and creating a formal relationship management program for our largest clients, leading to better resource allocation and enhanced accountability.
  // Drove step-change improvement in leasing focus by significantly enhancing lease execution process and accelerating timelines though construction and implementation of streamlined lease evaluation and execution process.
  // Recruited and upgraded key talent within the Office segment.
  // Founded and led Company-wide asset management leadership counsel with leaders of each area.
  // Worked closely with Mr. Riney to assume and effectuate a smooth transfer of responsibility for the NNN Healthcare portfolio following Mr. Riney’s retirement.
T. Richard
Riney
// Led and managed all legal aspects of investments, divestitures and leasing arrangements.

// Effective oversight of Company’s governance profile, including delivery of valuable advice and counsel to the Board.
  // Oversaw NNN Healthcare portfolio, driving steady growth and superior same-store cash NOI growth for this segment.
  // Restructured legal support model for the Office segment, resulting in enhanced oversight and efficiency.
  // Key participant in recruitment and onboarding of our next General Counsel, facilitating a smooth transition of his legal duties and responsibilities following his retirement.
  // Executed and implemented transition of NNN Healthcare portfolio responsibility to Mr. Bulgarelli.
  // Upgraded risk management function, allocating additional resources to build out the team and transition leadership and oversight to new individuals.
  // Provided orderly transition of Louisville office leadership to designated successor.

 

Result: Prior to the Board’s application of negative discretion to Ms. Cafaro’s award in response to constructive stockholder feedback requesting greater pay and performance alignment as described below, our Compensation Board Members determined that Ms. Cafaro achieved between the target and maximum performance levels with respect to her tailored individual objectives. Actual performance relative to the threshold, target and maximum levels for our Named Executive Officers is quantified below in the “Earned 2019 Annual Cash Incentive Awards” section.

 

Earned 2019 Annual Cash Incentive Awards

 

Based on the performance summarized above, in January 2020, our Compensation Board Members approved 2019 cash incentive awards for our Named Executive Officers as described below.

 

CEO Payout – Negative Discretion

 

As described above in the “Proactive Investor Outreach” section, the Compensation Board Members applied negative discretion to reduce the CEO’s 2019 annual cash incentive award materially, to below the target level, despite above-target performance on both her quantitative and qualitative 2019 annual goals. This resulted in a 50% reduction in her earned annual cash incentive award, which reduced her payout by nearly $1.8 million.

 

Specifically, based upon actual 2019 annual cash incentive award performance with respect to the pre-established quantitative goals and attainment at 90% of the maximum level with respect to our CEO’s qualitative individual performance goals, as measured by our Compensation Board Members, and reflecting Ms. Cafaro’s outstanding long-term performance and current value to the Company, her short-term annual cash incentive award payout would have been $3,579,263, or 166% of her target award and 92% of her maximum award for fiscal 2019 performance.  

 

However, as a result of Company’s three-year relative TSR underperformance that primarily occurred in the final quarter of 2019, and in order to demonstrate even greater alignment between CEO pay and results for stockholders, the Compensation Board Members exercised negative discretion with respect to our CEO’s attainment of both the quantitative and qualitative performance goals under the 2019 annual cash incentive award, reducing her 2019 payout by 50% overall, to $1,789,631, which is 83% of her target award and 46% of her maximum award.

 

 


 

 

 

 

This 2019 payout, made as the result of the exercise of negative discretion by the Compensation Board Members, is also $1.6 million less than the average short-term incentive payout received by the CEO the preceding three-year period, and is her lowest short-term incentive payout since 2008. The table below compares Ms. Cafaro’s actual payout to her potential earned payout (without negative discretion).

 

Goal CEO EARNED TOTAL AWARD CEO ACTUAL TOTAL AWARD
Payout Opportunity Levels Earned Actual Negative Discretion Impact
Threshold Target Maximum (%) ($)
Normalized FFO/Share $516,000 $860,000 $1,548,000 $1,548,000 $774,000 (50%) ($ 774,000)
Fixed Charge Coverage 129,000 215,000 387,000 221,880 110,940 (50%) (110,940)
R&I Development Growth 193,500 322,500 580,500 580,500 290,250 (50%) (290,250)
Individual Performance 451,500 752,500 1,354,500 1,228,883 614,441 (50%) (614,442)
Total $1,290,000 $2,150,000 $3,870,000  $3,579,263 $1,789,631 (50%) ($1,789,632)

 

Other Named Executive Officer Payouts

 

Annual cash incentive awards granted to our other Named Executive Officers for 2019 performance were earned between the target and maximum levels, ranging from 123% to 128% of their respective target award opportunities.

 

Named Executive Officer & Goals Threshold Target Maximum Actual
Robert F. Probst                
Normalized FFO/Share $  323,060   $    452,283   $    646,119   $    646,119  
Fixed Charge Coverage 80,765   113,071   161,530   115,009  
R&I Development Growth 121,147   169,606   242,295   242,295  
Individual Performance 282,677   395,748   565,354   384,441  
Total for Robert F. Probst $  807,649   $ 1,130,708   $ 1,615,298   $ 1,387,864  
John D. Cobb          
Normalized FFO/Share $  322,480   $   451,472   $    644,960   $    644,960  
Fixed Charge Coverage 80,620   112,868   161,240   114,803  
R&I Development Growth 120,930   169,302   241,860   241,860  
Individual Performance 282,170   395,038   564,340   445,829  
Total for John D. Cobb $  806,200   $ 1,128,680   $ 1,612,400   $ 1,447,451  
Peter J. Bulgarelli                
Normalized FFO/Share $   86,400   $    129,600   $    172,800   $    172,800  
Fixed Charge Coverage 21,600   32,400   43,200   32,832  
R&I Development Growth 32,400   48,600   64,800   64,800  
Office – Same Store Cash NOI Growth 40,950   61,425   81,900   76,050  
Office – GAAP NOI 40,950   61,425   81,900   81,900  
Office – Same Store Occupancy 32,760   49,140   65,520   49,140  
Office – Tenant Satisfaction 24,570   36,855   49,140   48,023  
Office – FAD Capital Expenditures 24,570   36,855   49,140   42,998  
Individual Performance 163,800   245,700   327,600   319,410  
Total for Peter J. Bulgarelli $  468,000   $   702,000   $    936,000   $     887,953  
T. Richard Riney                
Normalized FFO/Share $  288,456   $   403,838   $   576,912   $    576,912  
Fixed Charge Coverage 72,114   100,960   144,228   102,690  
R&I Development Growth 108,171   151,439   216,342   216,342  
Individual Performance 252,399   353,359   504,798   353,359  
Total for T. Richard Riney $  721,140   $ 1,009,596   $ 1,442,280   $ 1,249,303  

 

The dollar value of each Named Executive Officer’s award is set forth in the “Non-Equity Incentive Plan Compensation” column of the 2019 Summary Compensation Table.

 

2020 Annual Cash Incentive Award Program Metrics

 

In response to investor feedback and consistent with our strategic plan for 2020, our Compensation Board Members approved several changes to the performance metrics for the 2020 annual cash incentive award program as compared to 2019: (i) the Fixed Charge Coverage metric was eliminated, (ii) the Research & Innovation Development Growth metric was eliminated, (iii) the Normalized FFO per Share metric weighting was reduced from 40% to 30%, (iv) a Liquidity management metric was added at 15% weighting, (v) a Development Investment metric was added at 10% weighting and (vi) a Net Debt to Adjusted Pro Forma EBITDA metric was added at 10% weighting. The individual performance assessment metric remained unchanged at 35% weighting for all Named Executive Officers.

 

 


 

 

 

 

Long-Term Equity Incentive Compensation

 

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 program 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 metrics, 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.

 

 

 

Our long-term equity incentive compensation program emphasizes our commitment to aligning pay and performance, retaining and motivating talented executives and rewarding superior performance without incentivizing undue risk-taking. In addition, our 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 2019 program are summarized below.

 

// Forward-Looking Rather than Retrospective. The 2019 long-term equity incentive compensation program is prospective instead of retrospective. Performance-based awards are earned at a higher or lower level (including zero payout) based on future performance, rather than being granted following attainment of specified performance goals.
// No Qualitative or Discretionary Goals. Consistent with investor feedback, qualitative or discretionary goals, which comprised 50% of the award opportunity under the program prior to 2017, have been completely eliminated.

 

 


 

 

 

 

// Three-Year Measurement Periods. All pRSUs are earned and vest (or are forfeited) at the end of the three-year performance period.
// Significant Performance-Based Component. The aggregate target award value for our CEO is allocated such that 70% (increased from 60% in 2018) of the value is performance-based, in the form of pRSUs, and 30% (decreased from 40% in 2018) of the value is time-based RSUs. The aggregate target award value for each other Named Executive Officer in 2019 is allocated 60% in the form of pRSUs and 40% in the form of time-based RSUs.
// Balanced Mix of Performance Metrics; Substantial Relative TSR Metric Weighting. 51% of the CEO’s overall award opportunity under the 2019 program (and 73.4% of the pRSU award component) may be earned based on two relative TSR metrics. 44% of each other Named Executive Officer’s overall award opportunity (and 73.3% of the pRSU award component) may also be earned based on these TSR metrics. Consistent with our investors’ strong preference for the maintenance of a risk mitigation metric, the remaining portion of the pRSU component for all our Named Executive Officers may be earned based on the three-year average of the ratio of the Company’s net debt to adjusted pro forma EBITDA.
// Three-Year RSU Vesting Period. 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. No portion of the RSUs will be vested as of the grant date.
// Double-Trigger Vesting. All awards granted under the 2019 program are subject to double-trigger vesting upon the consummation of a change of control.
// 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.

 

Long-Term Equity Incentive Award Opportunities

 

2019 Opportunities

In late 2018 and early 2019, our Compensation Board Members approved the 2019 long-term equity incentive award opportunities for our Named Executive Officers, which remained unchanged from 2018 opportunities (as a percentage of base salary) for all except Ms. Cafaro and Mr. Bulgarelli.

 

Ms. Cafaro:

 

// Performance-based component increased from 60% to 70%

 

Ø    Further links CEO’s total compensation opportunity to the Company’s performance, in response to stockholder feedback 

Ø    Time-based equity opportunity reduced $689,500

 

// Threshold opportunity decreased 9%, target and maximum opportunities increased 6% and 12%, respectively

 

Ø    Lower potential payouts for below-target performance 

Ø    Further incentivizes outperformance in line with the Company’s pay-for-performance culture 

Ø    Adjustments largely driven by stockholder-focused decision to tie a larger portion of CEO’s long-term equity opportunity to Company performance

 

// CEO will only benefit from these structural changes in her long-term equity incentive compensation opportunities if the Company maintains superior performance relative to the preestablished, 100% objective and rigorous 2019 pRSU goals, rewarding outperformance in line with the Company’s pay-for-performance culture

 

Mr. Bulgarelli: 25% increase to his threshold, target and maximum opportunities, inclusive of his 2019 base salary adjustment

 

// Reflects his excellent 2018 performance and to bring his target total direct compensation closer to the market median

 

2020 Opportunities

 

In early 2020, our Compensation Board Members approved the 2020 long-term equity incentive award opportunities for our Named Executive Officers, which remained unchanged from 2019 opportunities (as a percentage of base salary) for all except Mr. Bulgarelli.

 

Mr. Bulgarelli: 25% increase to his threshold, target and maximum opportunities, inclusive of his 2020 base salary adjustment

 

// Approved in connection with our excellent Office performance, expansion of his responsibilities, growing Office portfolio and to bring his total compensation opportunity closer to market median

 

No opportunity increases for top three Named Executive Officers in 2020

  

Named Executive Officer

2018 Total Long-Term Equity 

Incentive Opportunity

2019 Total Long-Term Equity

Incentive Opportunity 

2020 Total Long-Term Equity

Incentive Opportunity

Threshold Target Maximum Threshold Target Maximum Threshold Target Maximum
Debra A. Cafaro $4,635,000 $8,305,000 $13,355,000 $4,229,550 $8,775,000 $14,978,925 $4,229,550 $8,775,000 $14,978,925
Robert F. Probst 1,787,805 2,979,675 4,416,192 1,841,439 3,069,065 4,542,216 1,841,439 3,069,065 4,542,216
John D. Cobb 1,784,599 2,974,331 4,408,272 1,838,136 3,063,560 4,534,069 1,838,136 3,063,560 4,534,069
Peter J. Bulgarelli 675,000 1,125,000 1,665,000 842,400 1,404,000 2,077,920  1,051,096  1,752,660  2,593,937
T. Richard Riney (1) 1,285,200 2,142,000 3,170,160 1,298,052 2,163,420 3,201,862

  

(1) Mr. Riney was not eligible to receive a long-term equity incentive award in 2020 due to his retirement from the Company.

 

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 contributions.

 


 

 

 

 

2019 Long-Term Equity Incentive Award Performance Metrics and Goals

 

For 2019, pRSUs may be earned, if at all, based on the Company’s three-year performance from January 1, 2019 through December 31, 2021 in relation to the following three performance metrics.

 

Three-Year Relative TSR Compared to the MSCI U.S. REIT Index

 

Metric   Achievement Goal   Weighting
    pRSU Component Total Opportunity

TSR relative to the MSCI U.S. REIT Index for the same period 

(from January 1, 2019 through December 31, 2019)

  Below Threshold - No Payout Below - 500 basis points  

36.7% 

(CEO)

25.7%

(CEO)

  Threshold - 500 basis points  
  Target Equal to Index  

36.7% 

(Non-CEO)

22% 

(Non-CEO)

  Maximum + 500 basis points  

 

Why does this metric matter? TSR is the most direct measure of our creation and preservation of stockholder value. The MSCI U.S. 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.

 

How were the goals set? Following discussions with our largest stockholders and a comprehensive review of relative TSR metrics utilized at peer companies prior to adopting our forward-looking program in 2017, we selected a -500 basis points to + 500 basis points band to (i) provide a market-based spread of performance across potential performance scenarios in line with our peer companies, (ii) cap payments to our Named Executive Officers beyond a challenging point of outperformance and (iii) create a “zero payout” scenario in the case of below threshold underperformance. 

 

 

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

 

Metric   Achievement Goal   Weighting
    pRSU Component Total Opportunity

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

(from January 1, 2019 through December 31, 2019)

  Below Threshold - No Payout Below - 500 basis points  

36.7%

(CEO)

25.7%

(CEO)

  Threshold - 500 basis points  
  Target Equal to Index  

36.7%

(Non-CEO)

22%

(Non-CEO)

  Maximum + 500 basis points  

 

Why does this metric 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.

 

How were the goals set? Following discussions with our largest stockholders and a comprehensive review of relative TSR metrics utilized at peer companies prior to adopting our forward-looking program in 2017, we selected a -500 basis points to + 500 basis points band to (i) provide a market-based spread of performance across potential performance scenarios in line with our peer companies, (ii) cap payments to our Named Executive Officers beyond a challenging point of outperformance and (iii) create a “zero payout” scenario in the case of below threshold underperformance. 

 

 

Three-Year Reported Net Debt to Adjusted Pro Forma EBITDA

 

Metric   Weighting
  pRSU Component Total Opportunity

Reported Net Debt to

Adjusted Pro Forma EBITDA

(simple average of 12 quarter-ends 

from January 1, 2019 through December 31, 2019)

 

26.6%

(CEO)

18.6%

(CEO)

 

26.7%

(Non-CEO)

16%

(Non-CEO)

 

Why does this metric matter? Reported Net Debt to Adjusted Pro Forma 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 Reported Net Debt to Adjusted Pro Forma 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 Reported Net Debt to Adjusted Pro Forma 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 Reported Net Debt to Adjusted Pro Forma EBITDA ratio, while avoiding suboptimal capitalization from an unnecessarily low ratio. This metric is balanced with our Normalized FFO per share growth metric to incent prudent growth while managing risk.

 

How were the goals set? These goals have been set in alignment with our financial plan and business outlook, including funding our R&I pipeline and other value-creating investments. In accordance with SEC reporting rules, the Company will disclose the specific threshold, target and maximum goal levels and our performance relative to such targets in the proxy statement immediately following the conclusion of the pRSU performance period.

 

 

Form and Amount of 2019 Long-Term Equity Incentive Awards

 

Our 2019 long-term equity incentive program consisted of two components: (i) pRSUs, which comprise 70% of the regular award opportunity for our CEO and 60% for our other Named Executive Officers and (ii) time-based RSUs, which comprise 30% of the regular award opportunity for our CEO and 40% for our other Named Executive Officers.

 

In accordance with SEC reporting rules, the dollar value of each Named Executive Officer’s 2019 forward-looking equity awards is reported as 2019 compensation in the “Stock Awards” columns of the 2019 Summary 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, as was the case for both relative TSR metrics upon vesting of the 2017 pRSUs at the end of 2019) and the stock price may vary at vesting from the grant date price, (ii) the relevant performance period for pRSUs will conclude at the end of 2021 and (iii) no portion of the 2019 time-based RSUs vested in 2019.

 

2019 pRSUs

 

The range of pRSU payouts is 0% - 201% of target for Ms. Cafaro and 0% - 180% for the other Named Executive Officers. Ms. Cafaro received pRSUs with a target award opportunity of 571% of her base salary with threshold and maximum award opportunities of 26% of target and 201% of target, respectively. Each Named Executive Officer other than Ms. Cafaro received pRSUs with target award opportunities ranging from 180% - 285% of their base salaries, with threshold and maximum award opportunities of 33% 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 25,051 96,352 193,669
Robert F. Probst 9,628 28,885 51,993
John D. Cobb 9,611 28,833 51,900
Peter J. Bulgarelli 4,404 13,214 23,785
T. Richard Riney 6,787 20,361 36,650

 

These awards will be earned, if at all, based on the Company’s performance from January 1, 2019 through December 31, 2021 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.

 

2019 Time-Based RSUs

 

The grant date value of the time-based RSU component was equal to 245% of Ms. Cafaro’s base salary and ranged from 120% to 190% of each other Named Executive Officer’s base salary.

 

Named Executive Officer Time-Based RSUs
Debra A. Cafaro 41,294
Robert F. Probst 19,256
John D. Cobb 19,222
Peter J. Bulgarelli   8,809
T. Richard Riney 13,574

 

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.


2017 pRSU Goal Achievement and Payout

 

In February 2020, our Compensation Board Members certified achievement of the pRSU performance goals for the January 1, 2017 – December 31, 2019 performance period and approved payout of the 2017 pRSUs as follows:

 

      2017 pRSU Achievement
Performance Goal Weighting Achievement Goal Cafaro Probst Cobb Bulgarelli (1) Riney (2)
Three-Year Relative TSR Compared to the MSCI REIT Index 5/12 of total target award Below Threshold Below - 500 basis points 0 0 0 0
Threshold - 500 basis points 10,213 4,118 4,051 3,000
Target Equal to Index 31,239 10,296 10,128 7,500
Maximum + 500 basis points 68,607 18,533 18,232 13,501
Actual - 556 basis points 0 0 0 8,891
Three-Year Relative TSR Compared to the FTSE Nareit Equity Health Care Index 7/24 of total target award Below Threshold Below - 500 basis points 0 0 0 0
Threshold - 500 basis points 7,148 2,883 2,836 2,100
Target Equal to Index 21,868 7,207 7,090 5,250
Maximum + 500 basis points 48,025 12,973 12,762 9,450
Actual - 707 basis points 0 0 0 3,469
Three-Year Reported Net Debt to Adjusted Pro Forma EBITDA 7/24 of total target award Below Threshold Above 6.0x 0 0 0 0
Threshold 6.0x 7,148 2,883 2,836 2,100
Target 5.8x 21,868 7,207 7,090 5,250
Maximum 5.6x 48,025 12,973 12,762 9,450
Actual 5.63x 44,101 12,108 11,911 8,785
  Total Earned pRSUs 44,101 12,108 11,911
21,145

(1)
Mr. Bulgarelli commenced employment with the Company in 2018 and therefore was not eligible to earn 2017 long-term equity incentive awards.
(2) Mr. Riney retired from the Company and transitioned to a consultant to the Company on October 15, 2019, which entitled him to earn a prorated 2017 pRSU award based on actual achievement vs. the performance goals through October 15, 2019. Mr. Riney’s full potential 2017 pRSU awards are reported above in the threshold, target and maximum rows but Mr. Riney’s actual awards are reported on a prorated basis.

 

2020 Long-Term Equity Incentive Award Metrics

 

The two relative TSR metrics and weightings remained unchanged from 2019, meaning that greater than 70% of the 2020 pRSU value for our Named Executive Officers continues to be tied to rigorous relative TSR metrics. In response to investor feedback and consistent with our strategic plan and commitment to ESG initiatives, our Compensation Board Members approved multiple changes to the performance metrics and goals for the 2020 pRSUs as compared to 2019: (i) the three-year Reported Net Debt to Adjusted Pro Forma EBITDA metric was eliminated, (ii) a three-year Research & Innovation Pipeline Openings metric was added at 11.7% weighting for the CEO and 10% weighting for all other Named Executive Officers and (iii) a quantitative Gender Balance metric focused on improving the Company’s representation of women employees was added at 6.9% weighting for the CEO and 6% weighting for all other Named Executive Officers, in alignment with our inclusive Company culture and values.

 

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 2019 included the following:

 

// health, dental and vision insurance (of which we paid 90% of the premium in 2019);
// short-term disability, long-term disability and life insurance coverage (at no cost to the employee); and
// 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 2019).

 

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 benefits provided to our Named Executive Officers in 2019 that was not otherwise available to all employees consisted of legacy supplemental disability and life insurance coverage, including reimbursement for taxes relating to that life insurance coverage, for Ms. Cafaro, as well as an opportunity to receive an executive physical medical examination. 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.

 

 


 

 

 

Other Policies

 

// Severance Benefits. As described in detail and quantified below in the “Employment and Severance Agreements with Named Executive Officers” section, 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, none of our Named Executive Officers are entitled to any tax gross-ups with respect to payments made 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).

// 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 CEO 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 (other than Mr. Bulgarelli, who is still subject to the transition period) 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 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 2019.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the foregoing 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 2019 Form 10-K.

 

COMPENSATION COMMITTEE

 

Richard I. Gilchrist, Chair
Roxanne M. Martino James D. Shelton

 

 


 

 

 

2019 Summary Compensation Table

 

The following table sets forth the compensation awarded or paid to, or earned by, each of our Named Executive Officers:

 

Name and Principal Position Year Salary Bonus

Stock 

Awards

(1)(2) 

Option Awards

(2)

Non-Equity Incentive Plan Compensation

All Other Compensation

(3)

Total

Debra A. Cafaro

Chairman of the Board and CEO 

 

2019 $1,075,000   $     —   $ 8,354,679   $       —   $ 1,789,631 (4) $ 129,025   $11,348,335  
2018 1,075,000        —    8,211,805          —    3,749,600    79,797    13,116,202  
2017 1,075,000  
   17,385,196    3,530,299    3,199,200    64,912    25,254,607  

Robert F. Probst

EVP and Chief Financial Officer

 

2019 646,119     2,835,139     1,387,864   24,155   4,893,277  
2018 627,300     2,838,860     1,518,850   10,591   4,995,601  
2017 615,000     5,647,649   973,955   1,357,613   10,080   8,604,297  

John D. Cobb

EVP and Chief Investment Officer

 

2019 644,960     2,830,077     1,447,451   20,228   4,942,716  
2018 626,175     2,833,802     1,516,126   14,250   4,990,353  
2017 605,000     5,502,415   906,278   1,335,538   10,080   8,359,311  

Peter J. Bulgarelli (5)

EVP, Office; President and CEO, Lillibridge Healthcare Services, Inc.

 

2019 468,000     1,296,989     887,953   16,867   2,669,809  
2018 329,178   675,000   979,000     77,824   4,318   2,065,320  
                             

T. Richard Riney (6)

Former EVP, Chief Administrative Officer, General Counsel and Ethics and Compliance Officer

 

2019 576,912     1,998,507       1,276,584   3,852,003  
2018 571,200     2,040,801     1,338,036   12,397   3,962,434  
2017 560,000     4,436,973   890,050   1,221,500   12,222   7,120,745  
   
(1) The amounts shown in the Stock Awards column for 2019 reflect the full grant date fair value (“GDFV”) of the 2019 pRSUs and the 2019 time-based RSUs, 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 2019 Form 10-K for a discussion of the assumptions used in calculating GDFV. For further information on these awards, see the 2019 Grants of Plan-Based Awards Table and 2019 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 Time-Based RSUs pRSUs (at Target) Total Grant Date Fair Value Maximum Value of pRSUs
Debra A. Cafaro $ 2,632,493 $ 5,722,186 $ 8,354,679 $ 11,501,683
Robert F. Probst 1,227,570 1,607,569 2,835,139 2,893,621
John D. Cobb 1,225,403 1,604,674 2,830,077 2,888,442
Peter J. Bulgarelli 561,574 735,415 1,296,989 1,323,734
T. Richard Riney 865,343 1,133,164 1,998,507 2,039,727

(2) In accordance with SEC reporting rules, amounts shown in the Stock Awards and Option Awards columns for 2017 include the GDFV of (i) the final backward-looking restricted stock and option awards that were granted in 2017 but earned based on 2016 performance, (ii) the initial forward-looking pRSU and RSU awards granted in 2017 but earned (or forfeited) based on 2017-19 performance and (iii) time-based one-time RSU transition equity awards designed to partially mitigate the temporary realized pay reduction that occurred upon adoption of our forward-looking plan. The amounts shown in the table do not include the greater than $6.2 million equity compensation forfeitures, inclusive of related dividend equivalents, that occurred as a result of our below-threshold performance (and zero payouts upon vesting) for both relative TSR metrics under our 2017 pRSU awards, calculated as follows:

 

Name MSCI TSR pRSUs (2017 Target) FTSE TSR pRSUs (2017 Target)

Forfeited TSR pRSUs

(Total 2017 Target)

Forfeited pRSUs

(Value at $62.22 Grant Price)

Dividend Equivalent Forfeiture Total Forfeiture Value
Debra A. Cafaro 31,239 21,868 53,107 $ 3,304,318 $ 459,641 $ 3,763,959
Robert F. Probst 10,296 7,207 17,503 1,089,037 151,488 1,240,525
John D. Cobb 10,128 7,090 17,218 1,071,304 149,022 1,220,326
Total 51,663 36,165 87,828 $ 5,464,658 $ 760,151  $ 6,224,810

(3) The 2019 All Other Compensation amounts include supplemental disability and life insurance premiums, group term life insurance premiums (“GTL”), GTL tax reimbursement, 401(k) matching contributions, amounts relating to executive physicals and accrued interest on dividend equivalents earned upon pRSU vesting, as shown below.

Name Supp. Disability Supp. Life GTL GTL Tax 401(k) Exec. Physical pRSU Interest Total
Debra A. Cafaro $ 73,391 $ 19,243 $ 2,772 $ 2,333 $ 9,800 $   — $ 21,486 $129,025
Robert F. Probst 966 9,800 7,490 5,899 24,155
John D. Cobb 630 9,800 3,995 5,803 20,228
Peter J. Bulgarelli 2,772 9,800 4,295 16,867
T. Richard Riney 2,195 9,800 4,295 10,991 27,281

(4) Ms. Cafaro’s 2019 amount reflects the Compensation Board Members’ application of negative discretion, which reduced Ms. Cafaro’s 2019 award by 50% (nearly $1.8 million) from her earned amount, as further described in the Compensation Discussion and Analysis section.
(5) The table omits 2017 amounts for Mr. Bulgarelli because he joined the Company in 2018. Since Mr. Bulgarelli was guaranteed a minimum target annual cash incentive award for 2018 only, we included such target amount in the 2018 Bonus column and the amount earned in excess of his target award in the Non-Equity Incentive Plan Compensation column.
(6) Mr. Riney retired from the Company and transitioned to a Senior Advisor role on October 15, 2019. His amount shown in the Base Salary column for 2019 includes his 2019 base salary through October 15, 2019 and consulting fees (at the same rate as his 2019 base salary) he earned through December 31, 2019. His amount shown in the All Other Compensation column for 2019 includes his full 2019 annual cash incentive award ($1,249,303) earned in accordance with the terms of his Consulting Agreement with the Company.

 

 


 

 

 

2019 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 2019:

 

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 Grant Date Fair Value of Stock and Option Awards (1)
Threshold Target Maximum Threshold Target Maximum
Debra A. Cafaro   (2) $1,290,000   $2,150,000   $3,870,000           $       —
2/11/2019 (3)        25,051   96,352   193,669     5,722,186
2/11/2019 (4)             41,294   2,632,493
Robert F. Probst  —   (2) 807,649   1,130,708   1,615,298          
2/11/2019 (3)       9,628   28,885   51,993     1,607,569
2/11/2019 (4)             19,256   1,227,570
John D. Cobb   (2) 806,200   1,128,680   1,612,400          
2/11/2019 (3)       9,611   28,833   51,900     1,604,674
2/11/2019 (4)             19,222   1,225,403
Peter J. Bulgarelli   (2) 468,000   702,000   936,000          
2/11/2019 (3)       4,404   13,214   23,785     735,415
2/11/2019 (4)             8,809   561,574
T. Richard Riney   (2) 721,140   1,009,596   1,442,280          
2/11/2019 (3)       6,787   20,361   36,650     1,133,164
2/11/2019 (4)             13,574   865,343
   
(1) The amounts shown reflect the full grant date fair value of the awards calculated pursuant to FASB guidance regarding fair value provisions for share-based payments. See Note 12 of the Notes to Consolidated Financial Statements included in our 2019 Form 10-K for a discussion of the relevant assumptions used in calculating grant date fair value.
(2) The amounts shown represent each Named Executive Officer’s threshold, target and maximum annual cash incentive opportunities for performance in 2019. These opportunities were approved by our Compensation Board Members in January 2019. The actual amount of each Named Executive Officer’s award is based on the achievement of certain performance goals as discussed in our CD&A. The annual cash incentive awards earned by our Named Executive Officers for performance in 2019 were paid during the first quarter of 2020. Such earned awards are shown in the “Non-Equity Incentive Plan Compensation” column (or, in the case of Mr. Riney only, in the “All Other Compensation” column) of the 2019 Summary Compensation Table.
(3) The amounts shown represent our Named Executive Officer’s threshold, target and maximum pRSU award opportunities for performance from January 1, 2019 – December 31, 2021. These opportunities were approved by our Compensation Board Members in January 2019. The actual amount of each Named Executive Officer’s earned pRSUs, if any, will be based on the achievement of certain performance goals as discussed in our CD&A.
(4) The amounts shown reflect time-based RSUs granted to our Named Executive Officers as part of the forward-looking long-term equity incentive plan for 2019. These shares vest in three equal annual installments, with the first installment vesting on the first anniversary of the date of grant.
                                       

 

 


 

 

 

2019 Outstanding Equity Awards at Fiscal Year-End Table

 

The following table sets forth information regarding equity-based awards granted to our Named Executive Officers that were outstanding at December 31, 2019:

 

Name Option Awards (1)  Stock Awards (1) 
Number of Securities Underlying Unexercised Options Exercisable Number of Securities Underlying Unexercised Options Unexercisable (2) Option Exercise Price Option Expiration Date Number of Shares or Units That Have Not Vested (3) Market Value of Shares or Units That Have Not Vested (4) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (5) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (4)
Debra A. Cafaro 216,906     $ 46.88   1/18/2022     $        —     $         —  
  208,802     55.50   1/23/2023          
  401,756     51.85   1/29/2024          
  377,758     65.94   1/21/2025          
  123,870     53.79   1/27/2026          
  123,870     65.45   5/4/2026          
  123,870     73.71   8/3/2026          
  123,870     63.24   11/2/2026          
  673,079     62.22   1/18/2027          
          97,580   5,634,269   185,509   11,434,296  
Robert F. Probst 26,083     65.94   1/21/2025          
  33,592     53.79   1/27/2026          
  33,591     65.45   5/4/2026          
  33,591     73.71   8/3/2026          
  33,591     63.24   11/2/2026          
  185,692     62.22   1/18/2027          
          39,073   2,256,075   60,872   3,760,631  
John D. Cobb 28,724     59.21   3/8/2023          
  26,634     51.85   1/29/2024          
  78,753     65.94   1/21/2025          
  31,005     53.79   1/27/2026          
  31,005     65.45   5/4/2026          
  31,004     73.71   8/3/2026          
  31,004     63.24   11/2/2026          
  172,789     62.22   1/18/2027          
          38,923   2,247,414   60,763   3,753,898  
Peter J. Bulgarelli         14,831   856,342   26,763   1,641,070  
T. Richard Riney 78,844     65.94   1/21/2025          
  29,702     65.45   5/4/2026          
  29,701     73.71   8/3/2026          
  29,701     63.24   11/2/2026          
  169,695     62.22   1/18/2027          

(1)

All awards are reported on a post-spin-off of Care Capital Properties, Inc. (the “Spin-off”) basis in order to reflect the arithmetic adjustment made to outstanding awards as of August 17, 2015, the effective date of the Spin-off, in order to exclude the impact of the Spin-off. The awards granted to our current Named Executive Officers shown in these columns (awards granted as of December 31, 2019) will vest (or have vested) as follows:

 

 

 


 

Date

Ms. Cafaro

(Stock Units)

Mr. Probst

(Stock Units)

Mr. Cobb

(Stock Units)

Mr. Bulgarelli

(Stock Units)

Mr. Riney

(Stock Units)

2020

January 18

16,661

5,601

5,510

 

 

January 24

19,813

7,108

7,096

 

 

February 11

13,765

6,419

6,408

2,937

 

April 9

 

 

 

3,011

 

December 31*

0 – 179,513

0 – 57,690

0 – 57,587

0 – 24,390

 

2021

January 24

19,812

7,108

7,095

 

 

February 11

13,765

6,419

6,407

2,936

 

April 9

 

 

 

3,011

 

December 31*

0 – 193,669

0 – 51,993

0 – 51,900

0 – 23,785

 

2022

February 11

13,764

6,418

6,407

2,936

 

 

*

The pRSU awards are reported on these rows in a range because the pRSUs may be earned (or are forfeited) based on the Company’s performance against preestablished performance goals from January 1, 2018 – December 31, 2020 or January 1, 2019 – December 31, 2021, as applicable. Earned awards, if any, will be paid out in the first quarter of the year following the end of the performance period.

(2)

All previously issued outstanding option awards are fully vested and will expire on the tenth anniversary of the grant dates.

(3)

Outstanding time-based RSUs vest in three equal annual installments beginning on the first anniversary of the date of grant. Our Named Executive Officers are generally entitled to dividends paid on unvested time-based RSUs.

(4)

For purposes of the table, the market value of time-based RSUs and pRSU awards that have not vested is determined by multiplying the number of shares/units by $57.74, the closing price of our common stock on December 31, 2019.

(5)

Outstanding pRSU awards may be earned and vest, if at all, in a single installment following the end of the applicable three-year performance period the date of grant. The pRSUs are reported at the target level because we are required by SEC rules to compare our performance through 2019 under the pRSU grant against the threshold, target and maximum performance levels for the grant and report the applicable potential share number. If the performance is between levels, we are required to report the potential payout at the next highest level. For example, if performance through the previous year exceeded target, even by only a modest amount, and even if it is unlikely that we will achieve the results that would dictate the payment of the maximum amount, we are required by SEC rules to report the maximum potential payouts. For the first year of the 2019-2021 performance period and the first two years of the 2018-2020 performance period, we tracked between the threshold and target levels of performance against the three pRSU performance goals on a combined basis and have accordingly reported the pRSUs at the target award levels. These amounts exclude the pRSU awards for the 2017-2019 performance period that vested based on the Company’s performance through December 31, 2019 and are reported in the “2019 Options Exercised and Stock Vested” table.

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. Thus, the unit amounts reported in the table also include the following accrued dividend equivalents at the target level (which are not paid unless and until the performance goals are met with respect to the underlying pRSUs):

 

Name

2018-2020 pRSU

Dividend Equivalents

2019-2021 pRSU

Dividend Equivalents

Total Dividend

Equivalents

Debra A. Cafaro

$  493,930

$  229,077

$  723,007

Robert F. Probst

177,208

68,674

245,882

John D. Cobb

176,892

68,550

245,443

Peter J. Bulgarelli

 64,358

 31,416

 95,774

T. Richard Riney

 


 

 

2019 Options Exercised and Stock Vested Table

 

The following table sets forth information regarding the value realized by our Named Executive Officers pursuant to the vesting or exercise of equity-based awards during 2019:

 

 

Name

Option Awards (1)

Stock Awards (1) 

Number of

Shares Acquired

Upon Exercise

Value

Realized

Upon Exercise

Number of

Shares Acquired

Upon Vesting

Value

Realized

Upon Vesting(2)

Debra A. Cafaro

224,248

 

$ 4,475,983

 

151,802

 

$ 9,138,491

 

Robert F. Probst

 

 

48,716

 

2,940,137

 

John D. Cobb

 

 

47,871

 

2,889,197

 

Peter J. Bulgarelli

 

 

3,012

 

187,075

 

T. Richard Riney

29,702

 

494,835

 

101,791

 

7,040,310

 

 

(1)

If a Named Executive Officer used share withholding to pay the exercise price of options or to satisfy the tax obligations with respect to the option exercise or the vesting of restricted stock or RSUs, the number of shares acquired and the value realized were less than the amounts shown.

(2)

The amounts shown in this column reflect the value of the earned 2017-19 pRSUs and RSUs, as applicable, based on the closing price of our common stock on the vesting dates. For Mr. Riney, this column includes the 2017, 2018 and 2019 pRSU awards he earned on a prorated basis in accordance with actual performance vs. the applicable performance goals through his October 15, 2019 retirement from the Company.

 

Employment and Severance Agreements with

Named Executive Officers

 

We are party to the following employment and severance agreements with our Named Executive Officers:

 

//

a second amended and restated employment agreement with Ms. Cafaro dated March 22, 2011 (the “Cafaro Employment Agreement”);

//

an offer letter to Mr. Probst dated September 16, 2014, and an employee protection and non-competition agreement with Mr. Probst dated September 16, 2014, as amended (collectively, the “Probst Employee Protection Agreement”);

//

an employee protection and noncompetition agreement with Mr. Cobb dated October 21, 2013, as amended (the “Cobb Employee Protection Agreement”);

//

an employee protection and noncompetition agreement with Mr. Bulgarelli dated March 20, 2018 (the “Bulgarelli Employee Protection Agreement”); and

//

a consulting agreement with Mr. Riney dated October 15, 2019 (the “Riney Consulting Agreement”) and, prior to October 15, 2019, (i) an amended and restated employment agreement with Mr. Riney dated July 31, 1998, as amended (the “Former Riney Employment Agreement”), and (ii) an amended and restated change-in-control severance agreement with Mr. Riney dated March 22, 2011 (the “Former Riney Severance Agreement”).

 

Under these agreements, our current Named Executive Officers are entitled to receive severance benefits upon certain qualifying terminations of employment (subject to any required payment delay pursuant to Section 409A of the Code). At the time we entered into each of the agreements, our Compensation Board Members considered the potential severance benefits to be necessary to attract and retain top executives and, generally based on market compensation analyses of the Compensation Committee’s independent compensation consultant, to be consistent with then current competitive market practices. None of the current agreements provide for any tax gross-up payments in connection with a change of control, and in 2013, consistent with our commitment to strong corporate governance and responsiveness to stockholders, we formalized our existing practice of not entering into new tax gross-up arrangements with our executive officers.

 

Cafaro Employment Agreement

 

The Cafaro Employment Agreement provides Ms. Cafaro with an annual base salary of not less than $915,000 and eligibility to participate in our incentive and other employee benefit plans. The Cafaro Employment Agreement also requires that we provide Ms. Cafaro with $2 million of life insurance coverage and executive disability coverage that would provide annual benefits of at least 100% of her base salary. Under the Cafaro Employment Agreement, the term of Ms. Cafaro’s employment will continue until terminated or the Cafaro Employment Agreement is amended. Upon termination of Ms. Cafaro’s employment for any reason, Ms. Cafaro will be subject to noncompetition and nonsolicitation restrictions for a period of one year, as well as certain confidentiality and nondisparagement restrictions.

 


 

Under the terms of the Cafaro Employment Agreement, Ms. Cafaro is entitled to the benefits summarized below upon the event specified. Under certain circumstances, Ms. Cafaro’s severance payments or other benefits are subject to reduction such that there will be no taxes imposed upon her by Section 4999 of the Code or any similar state or local tax.

 

Termination For Cause1 or Without Good Reason2

//

None

Change of Control3 Without a Termination of Employment

//

None

Termination Other Than For Cause or With Good Reason

(In connection with a Change of Control or otherwise)