PROPOSAL 2: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
Description of Proposal
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we provide our shareholders, annually, with the opportunity to vote, on an advisory basis, on the compensation of our named executive officers, or NEOs, as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. This proposal is commonly known as a say-on-pay proposal.
Please review the sections of this Proxy Statement entitled “Compensation Discussion and Analysis” for additional details regarding our executive compensation program. Please note, in particular the portion entitled “CD&A Executive Summary”“Compensation Objectives and Components” on page 3639 which describes significant components of our executive compensation program and actions taken by the Compensation Committee during and with respect to the 20192021 compensation year.
We are asking our shareholders to indicate their support for our NEO compensation as described in this Proxy Statement. This proposal gives our shareholders the opportunity to express their views on our NEO compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we are asking our shareholders to vote FOR the following resolution at the Annual Meeting:
“RESOLVED, that Washington REIT’sWashREIT’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in Washington REIT’sWashREIT’s Proxy Statement for the 20202022 Annual Meeting of Shareholders, pursuant to the compensation disclosure rules of the Securities and Exchange Commission (Item 402 of Regulation S-K), including the Compensation Discussion and Analysis, the 2019 Summary Compensation Tablecompensation tables and narrative discussions and the other related tables and disclosure.disclosure contained in this proxy statement.”
As provided by the Dodd-Frank Act, this vote is advisory, and therefore not binding on Washington REIT,WashREIT, the Board or the Compensation Committee. However, the Board and Compensation Committee value the views of our shareholders and, to the extent there is any significant vote against the NEO compensation as disclosed in this Proxy Statement, we will consider
our shareholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Voting Matters
Under our bylaws, approval of the say-on-pay proposal requires the affirmative vote of a majority of the votes cast. A majority of votes cast means that the number of votes “FOR” a proposal must exceed the number of votes “AGAINST” that proposal. Abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of this vote.
Notwithstanding the approval requirements set forth in the previous paragraph, the vote remains advisory, and the Board and Compensation Committee value the opinions of our shareholders regardless of whether approval (as defined in the previous paragraph) is actually obtained.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC.
COMPENSATION DISCUSSION AND ANALYSIS
CD&A Executive SummaryDespite continued headwinds across 2021 due to the pandemic, it was a transformational year for the Company as we successfully completed our Transformation into a multifamily company and also diversified outside of the Washington D.C. Metro region for the first time in the Company's history.
We embarked on a strategic repositioning of our portfolio, with the goal of transforming into a multifamily company and expanding outside the Washington Metro region for the first time in our history. In 2021, following the sale of the bulk of our office portfolio for gross proceeds of $766.0 million and an additional $168.3 million in retail dispositions, that Transformation is now largely complete. Following our commercial portfolio sales, we initiated our planned geographic expansion into the Southeast, where we continue to grow our footprint. During this transition, we shifted from being a diversified real estate company, with several asset classes/property types all located in the Washington, D.C. Metro region, to a multifamily-focused real estate company with properties in Southeastern markets. The illustration below depicts how we have transformed our portfolio from 2013 through the end of 2021 (based on number of assets in each class or location).
Our transactions in the past year have also helped us realize the following benefits:
•provided financial flexibility to prudently invest in the high-growth Southeastern region
•allowed us to significantly reset our earnings growth profile and enhance geographic diversification
•streamlined and simplified our business model to promote sustainable growth
•improved our cash flow characteristics - lower volatility, lower capex and greater growth going forward
•reduced our net leverage
While transforming into a multifamily-focused REIT, the asset class that we believe has the best long-term growth prospects in our regions, and expanding outside the Washington, D.C. Metro region, we remained focused on other key priorities, including continuous, safe operation of our properties, supporting our tenants, stabilizing our operating fundamentals and striving for good corporate citizenship.
Our 2021 performance highlights include:
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R | Achieved record level of capital recycling |
R | Expanded beyond the Washington, D.C. Metro region ◦Completed the acquisition of two properties in the Atlanta suburbs ◦Continued to look for opportunities in Atlanta, Georgia, Raleigh-Durham, North Carolina, Charlotte, North Carolina and South Carolina |
R | Grew our same-store residential occupancy by 1.9% over 2020 |
R | Improved same-store blended effective lease rate growth to 8.4% in Q4 2021 from -6.4% in Q4 2020 |
R | Trove, our most recent ground-up multifamily development, leased up and reached stabilized occupancy at faster pace than market average |
R | Re-initiated our renovation programs and completed 180 renovations |
R | Reduced recurring capital expenditures and improved our Adjusted funds from operations growth trajectory ◦Sold office assets (recurring capital expenditures to Net operating income (“NOI”) ratio of 19%) ◦Recycled capital into multifamily assets (recurring capital expenditures to NOI ratio of 5%) |
R | Preserved balance sheet amidst major capital recycling / debt repayment |
R | Achieved first-ever BREEAM certification for multifamily industry in the U.S. by achieving BREEAM certifications for eight residential properties |
R | Issued Green Bond Allocation Report which outlined the full allocation of net proceeds of its $350 million inaugural Green Bond offering |
R | Announced commitment to achieving net zero carbon operations by 2050 |
R | Established path to internalize property-level operations and enhance our operating platform |
Compensation Objectives and Components
The primary goals of our executive compensation program are to attract and retain the best executive talent and to alignwhile aligning the interests of our executives with those of our shareholders. A summary of some of the key attributes - what we do and what we don’t do - that define our program, are set forth below.
Key Components: The following were key components of our 2019 executive compensation program:
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| 2019 EXECUTIVE COMPENSATION PLAN | |
| WHAT WE DO | | WHAT WE DON’T DO | |
| We pay for performance, with the vast majority of any executive officer’s total compensation being based on performance | | No single-trigger change in control provisions. | |
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| We use multiple performance metrics in our STIP – core FFO per share, leasing targets and same-store NOI growth | | We do not provide tax gross-ups with respect to payments made in connection with a change in control | |
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| We use TSR – and only TSR – in our LTIP | | We do not allow hedging or pledging of our shares | |
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| We have implemented a clawback policy applicable to our executives | | We do not guarantee minimum STIP or LTIP payouts or annual salary increases | |
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| We have robust share ownership guidelines (which apply to executive officers and Trustees) | | We do not pay dividends on performance-based restricted shares until the performance period ends | |
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Say-On-Pay Results and Consideration
Because our recent say-on-pay proposals received the approval of a very significant percentage of those shareholders voting (i.e., approval from holders of more than 98%, 96% and 98% of our shareholders who cast votes in 2017, 2018 and 2019, respectively), the Compensation Committee considered such results and did not implement changes to our executive compensation program motivated by the shareholder advisory vote.
On June 1, 2017, the Board determined that, consistent with the Board’s recommendation for the 2017 Annual Meeting and the vote of the shareholders, Washington REIT will hold future say-on-pay votes on an annual basis until the next required vote regarding frequency of “say-on-pay” votes is conducted in 2023.
Compensation Objectives and Components
We believe that the primary goal of executive compensation is to attract and retain the best executive talent and align the interests of our executive officers with those of our shareholders. We think attracting and retaining executive talent is imperative to creating long-term value for our shareholders. We believe that providing salaries that fairly reward executives for their value to the organization is a critical base element of compensation. We also view performance-based compensation as a means to further motivate and reward our executives for achievement of our strategic and financial objectives. As a result, a substantial portion of our executive compensation program is performance-based.
A summary of some of the key attributes - what we do and what we don’t do - that define our program, is set forth below:
| | | | | | | | | | | | | | |
| What We Do | | | What We Don't Do |
| We pay for performance - the vast majority of any executive officer’s total compensation being based on performance and therefore “at-risk” | | | Change in control agreements do not provide for single trigger |
| We use multiple and balanced performance measures in our STIP established for each performance period | | | We do not provide tax gross-ups with respect to payments made in connection with a change in control |
| Payments under our STIP and LTIP are capped | | | We do not allow hedging or pledging of our shares |
| We use TSR in our LTIP | | | We do not guarantee minimum STIP or LTIP payouts or annual salary increases |
| We have implemented a clawback policy applicable to our executives | | | We do not pay dividends on performance-based restricted shares until the performance period ends |
| We have robust share ownership guidelines (which apply to executive officers and Trustees) | | | |
| Compensation Committee has engaged an independent compensation consultant | | | |
In 2019,2020, the Compensation Committee made a number of changes to the executive compensation program, most notably making adjustments to place a larger emphasis towards the long-term incentive plan ("LTIP") and multi-year performance and away from the short-term incentive plan ("STIP") and short-term performance. In February 2020, the Board amended and restated the STIP and the LTIP (the “Current LTIP”). Upon adoption by the Board, each of the STIP and the Current LTIP became effective for the performance periods beginning January 1, 2020. Among other changes, with the goal of further aligning our executive officers’ compensation with the interests of our shareholders, the STIP and the Current LTIP shifted award opportunities from the short-term plan to the long-term plan in order to increase the portion of our executive compensation that is subject to long-term performance.
For 2021, our executive compensation program primarily consisted of base salary, our short-term incentive plan (the “STIP”)STIP and our long-term incentive plan (the “LTIP”).LTIP. The STIP for 2021 consisted solely of annuala cash and restricted share awards.component. The LTIP consisted of awards of unrestricted shares and restricted shares. Additionally, pursuant to the STIP for performance periods prior to 2020, 50% of any STIP award was awarded in restricted shares which were subject to a ratable vesting schedule that ran for three years from the January 1 following completion of the one-year performance period. The additional components of our executive compensation program are described below under “- Other Executive Compensation Components.”
The Compensation Committee makes compensation decisions after careful analysis of performance information and market compensation data. In developing our executive compensation program, the Compensation Committee established the following compensation guidelines:
•executive base salaries should generally approximate the median base salary of our peer group, but there should also be flexibility to address particular individual circumstances that might require a different result, and
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• | •total direct compensation should result in pay levels consistent with the 75th percentile of our peer group only in circumstances where management has achieved “top level performance” in operational performance and strategic initiatives. |
An executive’s salary and total direct compensation are not mechanically set to be a particular percentage of the peer group average. Instead, the Compensation Committee reviews the executive’s compensation relative to the peer group to help
the Compensation Committee perform its overall analysis of the compensation opportunity for each executive. Peer group data is not used as the determining factor in setting compensation because (1) the executive’s role and experience within the Company may be different from the officers at the peer companies, (2) the compensation for officers at the peer companies may be the result of over- or under-performance and (3) the Compensation Committee believes that ultimately the decision as to appropriateestablish target compensation for a particular executive should be based on its members’ own business judgment with respect to the compensation opportunity for each executive, taking into account advice from FPL,FPC, as noted below.
Say-On-Pay Results and Consideration
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| Because our recent say-on-pay proposals received the approval of a very significant percentage of those shareholders voting (i.e., approval from holders of more than 98% of our shareholders who cast votes in 2019, 2020 and 2021, respectively), the Compensation Committee considered such results and did not implement programmatic changes to our executive compensation program motivated by the shareholder advisory vote. As discussed below under "Changes to 2021 STIP Performance Measures", the |
Compensation Committee did implement changes to the STIP for this year only as a result of our transformation throughout 2021.
On June 1, 2017, the Board determined that, consistent with the Board’s recommendation for the 2017 Annual Meeting and the vote of the shareholders, WashREIT would hold future say-on-pay votes on an annual basis until the next required vote regarding frequency of “say-on-pay” votes is conducted in 2023.
Role of Compensation Consultant and 2021 Peer Group Analysis
ThePursuant to the Compensation Committee charter, the decision to retain an independent consultant (as well as other advisors) is at the sole discretion of the Compensation Committee, and any such independent consultant works at the direction of the Compensation Committee. Pursuant to such authority, the Compensation Committee engaged the services of FPL,FPC, as an independent executive compensation consultant, to provide advice and counsel in carrying out its duties. FPLIn establishing 2021 executive compensation levels, the Compensation Committee Chair worked with FPC to determine the scope of work to be performed to assist the Compensation Committee in its decision-making processes. In conducting its work on 2021 executive compensation levels for the Compensation Committee, FPC also interacted with other members of the Compensation Committee, the Lead Independent Trustee, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer. FPC also provided the Compensation Committee with competitive pay analysis regarding both the broader market data on executive pay practices and levels.
The Compensation Committee worked with FPL to develop(including a comparative groupsurvey of peer companies and conduct a market analysis of executive compensation practices and pay levels based on this group. The Compensation Committee used the 11-company peer group set forth below for this purpose. Due to Washington REIT’s unique property-type diversification and geographic focus, it is difficult to construct a peer group that matches Washington REIT’s exact business model; however, the Compensation Committee, with FPL’s consultation, believes the 11 companies identified below are suitable peers as they (i) operate in one or more of Washington REIT’s existing real estate segments and (ii) are self-advised and internally managed. FPL compared the compensation of Washington REIT’s NEOs listed in the Summary Compensation Table on page 72 to the compensation of similarly situated executives employed by companies in the most recent National Association of Real Estate Investment Trusts, Inc. (“NAREIT”Nareit”) compensation survey) and a group of public REITs. FPC also provided the Compensation Committee with market data on executive pay practices and levels. FPC attended Compensation Committee meetings and, upon request by the Compensation Committee, executive sessions to provide advice and counsel regarding decisions facing the Compensation Committee.
The Compensation Committee has reviewed its relationship with FPC to ensure that FPC is independent from management. This review process includes a review of the services FPC provides, the quality of those services, and fees associated with the services during the fiscal year, as well as consideration of the factors impacting independence that are set forth in NYSE rules.
The Compensation Committee worked with FPC to develop the comparative 10-company peer group below. FPC then conducted a market analysis of executive compensation packages, practices and pay levels based on this group. Due to WashREIT’s unique property-type diversification and geographic focus, it is difficult to construct a peer group that matches WashREIT’s exact business model; however, the Compensation Committee, with FPC’s consultation, believes the companies identified below are suitable peers for 2021, as they (i) fell between 0.7 and 2.2 times the size of WashREIT based on total market capitalization, (ii) operate in one or more of WashREIT’s existing real estate segments, and (iii) are self-advised and internally managed. FPC compared the compensation of WashREIT’s NEOs to the compensation of similarly situated executives employed by companies in the most recent Nareit compensation survey and the 11 peer companies. The 11-company peer group set forth below will also be utilized for 50% of the relative total shareholder return components of the LTIP for periods that commenced on January 1, 2020, as described below on page 48.
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| Acadia Realty Trust | Cousins Properties Incorporated | Lexington Realty Trust |
| Brandywine Realty Trust | Highwoods Properties, Inc. | Mack-Cali Realty Corporation |
| Columbia PropertyCorporate Office Properties Trust | JBG Smith Properties | Piedmont Office Realty Trust, Inc. |
| Corporate Office Properties Trust | Kite Realty Group Trust | |
*Columbia Property Trust, which was initially included in the 2021 peer group was removed following their acquisition by funds managed by Pacific Investment Management Company LLC
FPL’sFPC’s data compared the compensation of Washington REITWashREIT officers based on base salary and total direct compensation, which included base salary, annual incentive compensation and an annualized present value of long-term incentive compensation. The Compensation Committee considers the amount and mix of base and variable compensation by referencing, for each executive level and position, the prevalence of each element and the level of compensation that are provided in the market based on the FPLFPC comparison analysis.
The Compensation Committee takes into account current financial performance in its evaluation of executive compensation. In particular, as it pertains to 2019,2021, the Compensation Committee took into account current financialkey drivers of value creation such as execution of our strategy and portfolio recalibration, capital allocation, balance sheet management, among others, as well as the Company's absolute performance, represented by core FFO per share, leasing targetsperformance relative to other companies in the industry and same-store NOI growth, in determining payouts underexternal circumstances that impacted the STIP.Company's performance. The Compensation Committee does not delegate any of its principal functions or responsibilities.
Role of Executives
The Compensation Committee believes management input is important to the overall effectiveness of Washington REIT’sWashREIT’s executive compensation program. The Compensation Committee believes the advice of an independent consultant should be combined with management input and the business judgment of the Compensation Committee members to arrive at a proper alignment of compensation philosophy, programs and practices.
The President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer are the management members who interact most closely with the Compensation Committee. These individuals work with the Compensation Committee to provide their perspectives on aligning compensation strategies with our business strategy and on how well our compensation programs appear to be working.
Target Compensation
The targeted compensation by component for our CEO and all other NEOs in 2021 was as follows:
Base Salary
The annual base salaries for our NEOs, as determined by our Compensation Committee for our President and Chief Executive Officer and by our President and Chief Executive Officer for our Executive Vice PresidentsPresident and Senior Vice President, which have been static since July of 2016, were as follows.follows:
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Position | Name | 2021 | 2020 | 2019 |
Chief Executive Officer | Paul T. McDermott | $ | 750,000 | | $ | 750,000 | | $ | 650,000 | |
Executive Vice President | Stephen E. Riffee | 450,000 | | 450,000 | | 425,000 | |
Senior Vice President | Taryn D. Fielder 1 | 350,000 | | 350,000 | | 325,000 | |
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Position (1) | Name | 2019 | 2018 | 2017 |
Chief Executive Officer | Paul T. McDermott | $ | 650,000 |
| $ | 650,000 |
| $ | 650,000 |
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Executive Vice President | Stephen E. Riffee | 425,000 |
| 425,000 |
| 425,000 |
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Senior Vice President | Taryn D. Fielder (2) | 325,000 |
| 325,000 |
| 325,000 |
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1As previously described, Ms. Fielder resigned effective February 25, 2022. | |
(1) | As described below, Thomas Q. Bakke served as Executive Vice President during a portion of 2019 at a base salary of $425,000 per annum. Mr. Bakke retired effective March 8, 2019. |
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(2) | Ms. Fielder joined Washington REIT as Senior Vice President, General Counsel and Corporate Secretary on March 29, 2017. |
Prior to 2020, the base salaries of our NEOs had remained unchanged since 2016 for Mr. McDermott and Mr. Riffee and 2017 for Ms. Fielder.
The Compensation Committee, acting in consultation with FPL,FPC, reviews and approves salary recommendations annually based on the considerations described above. The 20192021 compensation for each of our NEOs was determined based on a review of publicly disclosed compensation packages of executives of other public real estate companies and was intended to ensure that executive salaries generally approximate the median of the peer group.
The targeted compensation by component for our CEO and all other NEOs in 2019 was as follows:
Short-Term Incentive Plan (STIP)
Plan Summary
Under the STIP, as in effect for 2019, executives are provided the opportunity to earn awards, payable 50% in cash and 50% in restricted shares, based on achieving various performance objectives within a one-year performance period. The cash component of the award is paid following completion of the one-year performance period. The restricted shares are subject to a ratable vesting schedule that runs for three years from the January 1 following completion of the one-year performance period. The table below sets forth each executive’s total award opportunity under the STIP for the achievement of threshold, target and high performance requirements. While the plan structure is evaluated by the Compensation Committee annually, these award opportunities, which are stated as a percentage of base salary, have remained unchanged since 2014.
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| Cash Component (50%) | | Restricted Share Component (50%) |
| Threshold | Target | High | | Threshold | Target | High |
President and Chief Executive Officer | 58% | 113% | 195% | | 58% | 113% | 195% |
Executive Vice President | 48% | 93% | 160% | | 48% | 93% | 160% |
Senior Vice President | 35% | 65% | 115% | | 35% | 65% | 115% |
For 2019, overall STIP performance is evaluated on the following performance goals and weightings:
Financial Goals (75%)
The financial goals component of the STIP is comprised of the following three metrics:
Core funds from operations (FFO) per share;
Achievement of Leasing Targets (hereinafter defined); and
Same-store net operating income (NOI) growth.
As previously disclosed, the Compensation Committee amended the STIP in March 2019 to replace the use of a core FAD performance metric with a Leasing Target performance metric.
Our performance under these metrics is judged by the Compensation Committee in the aggregate and their aggregate weighting equals 75%. The Compensation Committee establishes guideline expectations for each performance metric but does not establish specific target, threshold or high performance levels underlying the aggregate financial performance goals.
At the completion of the one-year performance period, fulfillment of our financial performance goals is evaluated in the aggregate by the Compensation Committee in its discretion (taking into account absolute performance, performance relative to other companies in the industry, challenges faced by Washington REIT and/or positive external circumstances that may have beneficially impacted Washington REIT’s performance, input from the Board and a written presentation on satisfaction of such financial performance goals provided by the President and Chief Executive Officer). At the conclusion of the performance period, the Compensation Committee evaluates aggregate financial goal performance on a scale of below 1 (below threshold), 1 (threshold), 2 (target) or 3 (high). If the Compensation Committee determines that achievement of the aggregate financial goal performance fell between threshold and high, the portion of the award dependent on the aggregated financial performance goal is determined by linear interpolation (with an associated payout level in between threshold and target performance levels, or target and high performance levels, as applicable). If achievement of the aggregate financial goal performance falls below threshold level (i.e., rated by the Compensation Committee below a level of 1), the portion of the award that is dependent on aggregate financial goal performance will not be paid.
“Core FFO” is calculated by adjusting NAREIT FFO (as defined below) for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt, (2) expenses related to acquisition and structuring activities, (3) executive transition costs and severance expense related to corporate restructuring and related to executive retirements or resignations, (4) property impairments, casualty gains or losses, and gains or losses on sale not already excluded from NAREIT FFO, as appropriate, and (5) relocation expense. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, core FFO serves as a useful, supplementary measure of Washington REIT’s ability to incur and service debt, and distribute dividends to its shareholders. Core FFO is a non-GAAP and non-standardized measure, and may be calculated differently by other real estate investment trusts (“REITs”).
In its 2018 NAREIT FFO White Paper Restatement, NAREIT defines NAREIT FFO as net income (computed in accordance with generally accepted accounting principles (“GAAP”) excluding gains (or losses) associated with sales of property,
impairment of depreciable real estate and real estate depreciation and amortization. We consider NAREIT FFO to be a standard supplemental measure for equity REITs because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which historically assumes that the value of real estate assets diminishes predictably over time. Since real estate values have instead historically risen or fallen with market conditions, we believe that NAREIT FFO more accurately provides investors an indication of our ability to incur and service debt, make capital expenditures and fund other needs. Our FFO may not be comparable to FFO reported by other REITs. These other REITs may not define the term in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently. NAREIT FFO is a non-GAAP measure.
“Leasing Target” means the aggregate annual leasing target amount (measured in square feet of leasing space) as approved by the Compensation Committee for a given performance period with respect to our office and retail properties.
“Same-store portfolio NOI growth” is the change in the NOI (as defined below) of the same-store (also as defined below) portfolio properties from the prior reporting period to the current reporting period. “NOI” is a non-GAAP measure defined as real estate rental revenue less real estate expenses. NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain or loss on sale, if any), plus interest expense, depreciation and amortization, general and administrative expenses, acquisition costs, real estate impairment, casualty gains or losses, and gain or loss on extinguishment of debt. “Same-store” portfolio properties include properties that were owned for the entirety of the years being compared, and exclude properties under redevelopment or development and properties acquired, sold or classified as held for sale during the years being compared. We define “development” properties as those for which we have planned or ongoing major construction activities on existing or acquired land pursuant to an authorized development plan. We consider a property's development activities to be complete when the property is ready for its intended use. The property is categorized as same-store when it has been ready for its intended use for the entirety of the years being compared. We define redevelopment properties as those for which we have planned or ongoing significant development and construction activities on existing or acquired buildings pursuant to an authorized plan which has an impact on current operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. We categorize a redevelopment property as same-store when redevelopment activities have been complete for the majority of each year being compared.
Individual Goals (25%)
At the completion of the one-year performance period, fulfillment of individual goals is evaluated by the Compensation Committee in its discretion with respect to the President and Chief Executive Officer and by the President and Chief Executive Officer in his discretion with respect to all other executives (this carries a 25% weighting). At the conclusion of the one-year performance period, the Compensation Committee or the President and Chief Executive Officer, as applicable, evaluates performance on a scale of 1 (threshold), 2 (target) or 3 (high). If achievement of individual goals falls below threshold level, the portion of the award that is dependent on individual goals will not be paid.
The financial and individual performance goals are re-evaluated on an annual basis as to their appropriateness for use with respect to the subject performance period and in subsequent annual programs under the STIP based on any potential future changes in business goals and strategy.
Vesting and Payment
With respect to the 50% of the STIP award payable in restricted shares, the restricted shares (1) vest as to one-third of the shares on each of the first three anniversaries of the last day of the performance period, over a three-year period commencing on the January 1 following the end of the one-year performance period, (2) consist of a number of shares determined by dividing the dollar amount payable in restricted shares by the closing price per share on January 1 following the performance period (or, if not a trading day, the first trading day thereafter), and (3) are issued within 21/2 months of the end of the one-year performance period. The restricted shares are awarded out of and in accordance with Washington REIT’s 2016 Omnibus Incentive Plan. Washington REIT pays dividends currently on the restricted shares described in this paragraph. Because the restricted shares under the STIP will only be issued after the one-year performance period has ended, no dividends will be paid on restricted shares until the actual performance has been achieved.
If, during the three-year vesting period for the restricted shares described in the previous paragraph, the executive’s employment is terminated by Washington REIT without Cause, or the executive resigns for Good Reason, Retires, dies or becomes subject to a Disability while employed by Washington REIT, or a Change in Control occurs, the restricted shares awarded under the STIP will immediately vest. “Cause,” “Good Reason,” “Retire,” “Disability” and “Change in Control” have the meanings set forth in the STIP. With respect to the 50% of the award payable in cash under the STIP, 100% of such cash portion is payable within 21/2 months of the end of the performance period. The executive can elect to defer 100% ofthe cash portion pursuant to Washington REIT’s Deferred Compensation Plan for Officers. If the executive makes such election, the cash
is converted to RSUs and Washington REIT will match 25% of deferred amounts in RSUs. The executive is required to be employed on the last day of the performance period to be entitled to receive an STIP award, subject to the following exceptions. If during the performance year, the executive’s employment is terminated by Washington REIT without Cause, or the executive resigns for Good Reason, Retires, dies or becomes subject to a Disability while employed by Washington REIT, the executive will receive an award under the STIP calculated based upon actual results for the full one-year performance period, but the award will be prorated based on the period of employment during the one-year performance period through the date of such event and the portion of the award paid in restricted shares will immediately vest. If a Change in Control occurs during the one-year performance period, the performance goals under the STIP will be prorated based on the period of time during the one-year performance period through the date of the Change in Control, the executive will receive an award under the STIP that is prorated based on the period of employment during the one-year performance period through the date of the Change in Control and the portion of the award paid in restricted shares will immediately vest.
STIP Determinations by Compensation Committee
In the case of core FFO per share, Leasing Targets and same-store NOI growth objectives, management proposed guidelines for measuring threshold, target and high performance levels based on Washington REIT’s business projection and budget materials. These guidelines were then extensively reviewed by the Compensation Committee (together with the Board) and subsequently approved. The resulting approved guidelines for each of the financial goals across threshold, target, and high performance levels under the STIP are presented in the table below, along with the 2019 actual results recognized by the Compensation Committee:
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| Threshold | Target | High | Final Results Recognized by the Committee |
Core FFO per share | $1.67 | $1.70 | $1.73 | $1.71 |
Leasing Targets | 531,250 s.f. | 625,000 s.f. | 687,500 s.f. | 1,133,800 s.f. |
Same-store NOI growth | -1.95% | -1.20% | -0.45% | -0.20% |
In making its assessment of the performance of financial goals, the Compensation Committee noted that actual performance with respect to core FFO per share slightly exceeded the target performance level, actual performance with respect to Leasing Targets exceeded the high performance level, and actual performance with respect to same-store NOI growth exceeded the high performance level. In recognition of this overall performance, the Compensation Committee determined a combined score of 2.78 for the financial goals (75% weighting) portion of the STIP (on a scale of 1 to 3, with 3 being the highest level of
achievement). In determining such combined score, the Compensation Committee made no subjective adjustments to its scoring of core FFO per share, Leasing Targets or same-store NOI growth.
In the case of the individual objectives (25% weighting) portion of the STIP, the Compensation Committee reviewed and determined the performance of Mr. McDermott and Mr. McDermott reviewed and determined the performance of each of the other executives. With respect to the Compensation Committee’s determination of Mr. McDermott’s performance, the Compensation Committee took into account the recycling of proceeds from the sale of a portion of the retail portfolio into more multifamily assets, which was conducted as part of a 1031 exchange in order to manage tax gains, the disposition of Quantico Corporate Center and 1776 G Street, successful execution of the capital plan, including strengthening the balance sheet by raising equity and paying down secured debt, and continuing operational improvements within Washington REIT. With respect to Mr. McDermott’s determination of the performance of the other executives, Mr. McDermott took into account the performance in 2019 of each executive in leading his or her respective department and Washington REIT as a whole and in contributing to the financial and operational accomplishments of Washington REIT. The final determinations of the Compensation Committee and Mr. McDermott with respect to individual performance are reflected in the actual payout amounts for 2019 under the STIP as presented in the Summary Compensation Table and related footnotes within this Proxy Statement.
Based on the results outlined above, the Compensation Committee approved the following awards under the STIP in 2019.
|
| | | | | | | |
| Target 2019 STIP Award (Value) | | Actual 2019 STIP Award (Value) |
President and Chief Executive Officer | $ | 1,469,000 |
| | $ | 2,356,250 |
|
Executive Vice President | 790,500 |
| | 1,264,375 |
|
Senior Vice President | 422,500 |
| | 674,375 |
|
At the request of the Compensation Committee, an internal audit was performed to review management’s calculations for the STIP to confirm that they comply with the STIP. This internal audit was then presented to the Compensation Committee for its review and acceptance.
Long-Term Incentive Plan (LTIP)
Plan Summary
Under the LTIP, as in effect for 2019, executives are provided the opportunity to earn awards based on achieving TSR performance objectives across a three-year performance period, which, if earned, are payable 75% in unrestricted shares and 25% in restricted shares. The LTIP is a “rolling” plan, with a new three-year performance period commencing on January 1 of each year. Each executive’s total award opportunity under the LTIP, stated as a percentage of base salary, for the achievement of threshold, target and high performance requirements is set forth in the table below:
|
| | | |
| Threshold | Target | High |
President and Chief Executive Officer | 80% | 150% | 270% |
Executive Vice President | 50% | 95% | 170% |
Senior Vice President | 40% | 80% | 140% |
For purposes of calculating award payouts at the conclusion of each three-year performance period, the level of salary is determined for each executive as of the beginning of the applicable performance period. Each TSR goal is measured over a three-year performance period based on a share price determination made at the beginning and end of the performance period and dividends paid with respect to the common shares during the performance period. For purposes of calculating total shareholder return metrics, the “starting price” equals the average closing price for the 20-trading day period beginning on the first trading day of the performance period. The “ending price” equals the average closing price for the 20-trading day period beginning on the first trading day after the end of the performance period for performance periods that commenced before January 1, 2016, and the average closing price for the last 20 trading days of the performance period for performance periods commencing on or after January 1, 2016. LTIP performance is evaluated on both of the following TSR performance goals and weightings:
Absolute TSR - 50% (for the performance period that commenced on January 1, 2017 only)
For absolute TSR, threshold, target and high performance levels are 6%, 8% and 10%, respectively, over the performance period (calculated on a compounded, annualized basis). If absolute TSR falls between 6% and 8% or between 8% and 10%, absolute TSR will be rounded to the closest TSR percentage in increments of 0.5% (e.g., 8.3% will be rounded to 8.5%) and the portion of the LTIP award that is dependent upon TSR will be determined by linear interpolation. If absolute TSR falls below the applicable threshold level, the portion of the award that is dependent on such goal will not be paid.
Relative TSR (FTSE NAREIT Diversified Index) - 50% - (for performance periods that commenced on or after January 1, 2018)
For performance periods that commenced on or after January 1, 2018, the absolute TSR metric was replaced with a relative TSR metric for which relative return is compared against that of the companies comprising the FTSE NAREIT Diversified Index.
Threshold, target and high performance levels for relative TSR measures are the 33rd, the 51st and the 76th percentiles, respectively. If relative TSR falls between the these percentiles, the actual relative TSR performance level is to be determined by linear interpolation (with an associated payout level in between threshold and target performance levels, or target and high performance levels, as applicable). If relative TSR falls below the applicable threshold level, the portion of the award that is dependent on such goal will not be paid.
Relative TSR (Peer Group) - 50%
For relative TSR, Washington REIT’s TSR performance will be measured over the applicable performance period against a peer group of companies selected by the Compensation Committee, after consultation with its independent compensation consultant, at the beginning of the performance period. Prior to determining performance for an applicable period, the Compensation Committee will remove companies from the peer group for such period that cease to be peer group companies as a result of acquisitions, divestitures and other similar actions.
For the performance periods that commenced on each of January 1, 2020 and January 1, 2019, Washington REIT’s relative TSR performance will be measured over the performance period against the 11-company peer group set forth above under “Role of Compensation Consultant and Peer Group Analysis,” and a copy of which is also set forth below.
|
| | | |
| Acadia Realty Trust | Cousins Properties Incorporated | Lexington Realty Trust |
| Brandywine Realty Trust | Highwoods Properties, Inc. | Mack-Cali Realty Corporation |
| Columbia Property Trust | JBG Smith Properties | Piedmont Office Realty Trust, Inc. |
| Corporate Office Properties Trust | Kite Realty Group Trust | |
For the performance period that commenced on January 1, 2018, Washington REIT’s relative TSR performance will be measured over the performance period against the 12-company peer group set forth below.
|
| | | |
| Acadia Realty Trust | Cousins Properties Incorporated | Kite Realty Group Trust |
| Brandywine Realty Trust | Education Realty Trust, Inc. | Lexington Realty Trust |
| Columbia Property Trust | Highwoods Properties, Inc. | Mack-Cali Realty Corporation |
| Corporate Office Properties Trust | JBG Smith Properties | Piedmont Office Realty Trust, Inc. |
For the performance period that commenced on January 1, 2017, Washington REIT’s relative TSR performance will be measured over the performance period against the 13-company peer group set forth below.
|
| | | |
| Brandywine Realty Trust | Equity One, Inc. | Lexington Realty Trust |
| Cedar Realty Trust | First Potomac Realty Trust | Liberty Property Trust |
| Columbia Property Trust | First Industrial Realty Trust, Inc. | Mack-Cali Realty Corporation |
| Corporate Office Properties Trust | Highwoods Properties, Inc. | Piedmont Office Realty Trust, Inc. |
| Cousins Properties Incorporated | | |
Vesting and Payment
The LTIP awards are payable 75% in unrestricted shares and 25% in restricted shares, and are awarded out of and in accordance with Washington REIT’s 2016 Omnibus Incentive Plan. These unrestricted shares and restricted shares are to (1) in the case of the restricted shares only, vest over a one-year period commencing on the January 1 following the end of the three-year performance period, (2) consist of an aggregate number of shares determined by dividing the dollar amount payable in unrestricted shares and restricted shares by the closing price per share on such January 1 and (3) be issued within 21/2 months of the end of the three-year performance period. Washington REIT must pay dividends currently on the restricted shares described above in this paragraph. Because restricted shares under the LTIP will only be issued after the three-year performance period has ended, no dividends will be paid on restricted shares until the actual performance has been achieved.
If, during the one-year vesting period for the restricted shares described in the previous paragraph, the executive’s employment is terminated by Washington REIT without Cause, or the executive resigns for Good Reason, Retires, dies or becomes subject to a Disability while employed by Washington REIT, or a Change in Control occurs, the restricted shares awarded under the LTIP will immediately vest. “Cause,” “Good Reason,” “Retire,” “Disability” and “Change in Control” have the meanings set forth in the LTIP. The executive is required to be employed on the last day of the performance period to be entitled to receive an LTIP award, subject to the following exceptions. If during the three-year performance period, the executive’s
employment is terminated by Washington REIT without Cause, or the executive resigns with Good Reason, Retires, dies or becomes subject to a Disability while employed by Washington REIT, the executive will receive an award under the LTIP calculated based on actual levels of achievement as of the date of such event, but the award will be prorated based on the period of employment during the three-year performance period through the date of such event and the award will immediately vest. If a Change in Control occurs while the executive was employed by Washington REIT during the three-year performance period, the executive will receive an award calculated in a similar manner as described in the immediately preceding sentence (provided, however, that the award would not be prorated based on the period of employment during the performance period through the date of such event) and the award would immediately vest. In all of the foregoing cases, payment of the award would be accelerated.
The grant date fair values for the LTIP awards for 2019 are presented in the Summary Compensation Table and related footnotes within this Proxy Statement.
LTIP Determinations by Compensation Committee
With respect to TSR goals under the LTIP, the Compensation Committee reviewed the total shareholder return calculations against LTIP metrics with respect to the award opportunity, which had a three-year performance period ending on December 31, 2019. As noted above, for the absolute TSR goal, the threshold, target and high performance levels were 6%, 8% and 10% total shareholder return over the performance period (calculated on a per annum basis). As of the end of the performance period, Washington REIT’s absolute total shareholder return for the period was calculated to be 1.13%. As a result, pursuant to the terms of the LTIP, no award was made with respect to the absolute TSR goal since absolute total shareholder return for the period did not meet the threshold performance level.
For the relative TSR goal for the three-year period ending on December 31, 2019, Washington REIT’s TSR performance was measured over the performance period against the company peer group utilized by the Compensation Committee as of the beginning of such period, with peer companies that were no longer in existence being removed from the peer group when performance was measured. Threshold, target and high performance levels for relative TSR were the 33rd, the 51st and the 76th percentiles, respectively. As of the end of the performance period, Washington REIT’s relative TSR ranked at the 36th percentile. As a result, pursuant to the terms of the LTIP, the Compensation Committee made awards with respect to the relative TSR goal calculated based on such achievement.
2020 Compensation Decisions
The Company has generally maintained the same compensation program for a number of years - the STIP awards, as percentages of base salary, have remained unchanged since 2014 and the LTIP awards, as a percentage of base salary, have remained the same since 2011. Commencing in 2020, and in light of the Company’s evolving strategy, the Compensation Committee has decided to adjust its pay program to better align executive pay with market practices. As such, the Compensation Committee made a number of changes to the 2020 executive compensation program, most notably making adjustments to place a larger emphasis towards the LTIP and multi-year performance and away from the STIP and short-term performance. The following chart highlights these compensation changes, which are also discussed in more detail below.
The charts below show the target compensation mix between the 2019 program and the new 2020 program in order to better depict the change in how the amount of compensation previously tied to the STIP has shifted to the LTIP.
Please note: Mr. Bakke has been excluded from the Other NEO charts as he retired from the Company effective March 8, 2019.
2020 Base Salary
On February 14, 2020, the Board approved the following base salaries for our NEOs for 2020.
|
| | | | |
Position | Name | 2020 Base Salary |
Chief Executive Officer | Paul T. McDermott | $ | 750,000 |
|
Executive Vice President | Stephen E. Riffee | 450,000 |
|
Senior Vice President | Taryn D. Fielder | 350,000 |
|
Also on February 14, 2020, the Board adopted an amendment and restatement of the STIP (the “2020 Amended and Restated STIP”) and the LTIP (the “2020 Amended and Restated LTIP”). Upon adoption by the Board, each of the 2020 Amended and Restated STIP and the 2020 Amended and Restated LTIP became effective for the performance periods beginning January 1, 2020.
Short-Term Incentive Compensation
Under the 2020 Amended and Restated STIP, all NEOs will have the opportunity to receive an annual bonus award, payable in cash bonusfollowing completion of the one-year performance period, based on the achievement of certain performance measures that will beare established for each performance period. Each year, the Compensation Committee will establish the
threshold, target and high performance goals for each performance measure, as well as the weighting attributable to each such performance measure, with the aggregate weighting for all such performance measures to total 100%. Such performance measures will consist of one or more financial performance measures and, if determined by the Compensation Committee, individual performance measures.
Upon or following completion of a performance period, the degree of achievement of each financial performance measure will be determined by the Compensation Committee. TheCommittee in its discretion (taking into account absolute performance, performance relative to other companies in the industry, challenges faced by WashREIT and/or positive external circumstances that may have beneficially impacted WashREIT’s performance, input from the Board and a written presentation on satisfaction of such financial performance goals provided by the President and Chief Executive Officer). If the Compensation Committee determines that the degree of achievement of an applicable financial performance measure fell between threshold and target or between target and high, then the portion of the award dependent upon such financial performance measure shall be determined by linear interpolation. If achievement of the applicable financial performance measure falls below threshold, the portion of the award that is dependent on such financial performance measure will not be paid.
Upon or following completion of a performance period, the degree of achievement of any individual financial performance measures will be determined by the Compensation Committee in its discretion with respect to the Chief Executive Officer, and by the Chief Executive Officer or other immediate supervisor in his or her discretion with respect to all other participants (subject to final approval by the Compensation Committee), and the Compensation Committee will evaluate the degree of achievement of the individual performance measures on a scale of below 1 (below threshold), 1 (threshold), 2 (target) or 3 (high) or any fractional number between 1 and 3. If the Compensation Committee determines that the degree of achievement of the individual performance measures fell between threshold and target or between target and high, then the portion of the award dependent upon such individual performance measures shall be determined by linear interpolation. If achievement of the individual objectives goal falls below threshold level, the portion of the award that is dependent on the individual objectives goal will not be paid.
Each participant’s total award under the 2020 Amended and Restated STIP with respect to a performance period will be stated as a percentage of the participant’s annual base salary determined as of the first day of that performance period, which percentage will depend upon the participant’s position and the degree of achievement of threshold, target, and high performance goals for the performance period which, except as otherwise determined by the Compensation Committee, will be as set forth in the table below:
| | | | | | | | | | | |
| Threshold | Target | High |
President and Chief Executive Officer | 63% | 125% | 188% |
Executive Vice President | 48% | 93% | 160% |
Senior Vice President | 35% | 65% | 115% |
|
| | | |
| Threshold | Target | High |
President and Chief Executive Officer | 63% | 125% | 188% |
Executive Vice President | 48% | 93% | 160% |
Senior Vice President | 35% | 65% | 115% |
The financial and individual performance goals are re-evaluated on an annual basis as to their appropriateness for use with respect to the current performance period and for subsequent annual programs under the STIP based on any potential future changes in business goals and strategy.
The executive can elect to defer 100% ofthe award pursuant to WashREIT’s Deferred Compensation Plan for Officers. If the executive makes such election, the cash is converted to RSUs and WashREIT will match 25% of deferred amounts in RSUs.
Changes to 2021 STIP Performance Measures
As noted above, 2021 marked a Changetransformational year for WashREIT.Due to the planned sale of the majority of our commercial portfolio in Control (as defined2021, the Compensation Committee determined in early 2021 that the traditional metrics used to measure financial performance under the STIP in past years (such as Core FFO, Same-Store NOI and leverage) would be ineffective for purposes of measuring and evaluating performance for 2021. After careful deliberation during the spring of 2021 and based on guidance at the time from the Compensation Committee’s independent consultant, FPC, the Compensation Committee determined to modify the 2021 STIP performance measures to use an alternative framework for 2021 only in order to best measure and evaluate participant’s performance during this transformational year.The Compensation Committee intends to return to our more typical financial performance measures in 2022.
In the spring and summer of 2021, the Compensation Committee developed a 2021 STIP Performance Scorecard, containing a number of key initiatives and milestones to accomplish for the year that were balanced across multiple performance dimensions, that was ultimately adopted in the 2020 Amendedfall of 2021. The scorecard was constructed with ascribed numerical weightings and Restated STIP) occurs duringoutcomes tied to performance payouts so that there was an objective scoring framework surrounding the various critical initiatives and milestones. The Compensation Committee focused on key drivers of value creation, such as execution of our strategy and portfolio recalibration, capital allocation, balance sheet management, among other key items. These metrics (outlined below) were contemplated in conjunction with maintaining a performance period while2021 LTIP that contains a high degree of emphasis on relative total shareholder return (TSR) performance.
| | | | | | | | | | | | | | | | | |
| | | Performance Hurdles1 |
Pay Element | Weighting | Metric | Threshold | Target | High |
Company Performance Scorecard | 75% | Successful execution of office portfolio sale | 6 | 8 | 10 |
Successful execution of retail portfolio sale |
Reinvestment or commitment of substantially all of net commercial sale proceeds into multifamily assets |
Implementation of targeted investor relations campaign around Transformation |
Manage debt repayment to ensure targeted leverage and re-syndicate line of credit |
Build roadmap to define and execute long-term multifamily strategy |
Individual Objectives | 25% | Performance of individual executive over performance period | Varies by Individual |
1Each of the participant is employed,scorecard metrics will be scored from 0 to 2 based on performance; the participantscores from all of the six listed metrics will receive a prorated award under the 2020 Amendedthen be added and Restated STIP calculatedpayouts will be determined based on the actual levels ofthreshold, target, and high point values listed above.
In determining 2021 bonus amounts, the Compensation Committee focused primarily on the STIP milestones described below, as well as the Company's achievement of the proratedaccomplishments set forth under "2021 Performance Highlights" above. The goal score necessary to earn the respective bonus payout amounts (as a percentage of salary) outlined on page 45 are set forth below.
| | | | | | | | | | | |
| Threshold | Target | High |
Cumulative Goal Score | 6 | 8 | 10 |
| | | |
| | | |
| | | |
If the Compensation Committee determined that the number of performance goals asfell between threshold and target or between target and high, then the portion of the dateaward dependent upon such goals was determined by linear interpolation. If achievement of the Changeapplicable performance goals falls below threshold (i.e., a score below 6), the portion of the award that is dependent on such goals would not have been paid.
Achievement of 2021 Company Performance Goals
The table below summarizes the Company's 2021 performance against each of the six performance goals established by the Compensation Committee, as well as the significance of each performance goal for purposes of determining executive compensation:
| | | | | |
Performance Goal #1: Successful execution of the office portfolio sale |
| |
2021 Result | Goal Achievement |
Sale of Office Portfolio, gross proceeds of $766.0 Million | 2 out of 2 points |
Why is this performance goal important? In order to complete our transformation into a multifamily REIT, it was critical to substantially exit out of our office portfolio. This exit provides capital for the acquisition of multifamily
assets and the repayment of debt while allowing management to focus on executing our strategy for generating growth in Control. Ifthe multifamily sector.
2021 Result: Amidst a backdrop where office properties have and continue to face challenges due to the COVID-19 pandemic, including less demand due to increased ability to work from home, we were able to accelerate the timing of our disposal of twelve of our remaining thirteen office assets, realizing gross proceeds of $766 million. We sold the entire portfolio to a single buyer in one cash transaction, limiting expenses relating to the disposal of these assets and providing an immediate source of capital for repaying debt and acquiring multifamily assets.
| | | | | |
Performance Goal #2: Successful execution of the retail portfolio sale |
| |
2021 Result | Goal Achievement |
Sale of Retail Portfolio, gross proceeds of $168.3 Million | 2 out of 2 points |
Why is this performance goal important? In order to complete our Transformation into a multifamily REIT, it was also critical to exit out of our remaining retail portfolio. As is the case with the sale of substantially all of our office portfolio as described above, this exit provides capital for the acquisition of multifamily assets and the repayment of debt while allowing management to focus on executing our strategy for realizing growth in the multifamily sector.
2021 Result: Even while the demand for retail properties declined as a result of the COVID-19 pandemic, we were able to accelerate the timing of our disposal of our eight remaining retail properties, realizing gross proceeds of $168.3 million and fully exiting the retail sector. We were able to efficiently sell the entire portfolio to a single buyer in one cash transaction, providing an immediate source of capital for repaying debt and acquiring multifamily assets, while minimizing transaction costs.
| | | | | |
Performance Goal #3: Reinvestment or commitment of substantially all of net commercial sale proceeds into multifamily assets |
| |
2021 Result | Goal Achievement |
Acquisition of or agreement to acquire 2 assets, aggregate acquisition price of $154.0 Million | 1 out of 2 points |
Why is this performance goal important? A key component of our strategic Transformation is the expansion of our multifamily portfolio including entering into Southeastern markets. Our research shows that these markets represent a significant and growing pipeline of multifamily investment opportunities. The redeployment of commercial assets sales proceeds into multifamily assets in the Southeastern markets represents the critical first step in this expansion strategy.
2021 Result: Since we previously have only operated in the Washington, D.C. Metro region, expansion into new markets required significant efforts in research, strategy and outreach to brokers and potential sellers of multifamily assets. In addition, the multifamily markets in the Southeastern region are very typically competitive with multiple offers for every available asset. In light of these factors, although we did not reinvest substantially all of the net proceeds during 2021, the redeployment of $154.0 million into acquired assets was a significant accomplishment.
| | | | | |
Performance Goal #4: Implementation of targeted Investor Relations campaign around Transformation |
| |
2021 Result | Goal Achievement |
Successfully executed campaign | 2 out of 2 points |
Why is this performance goal important? The disposition of our office and retail portfolios and the announced intention to enter new markets were significant departures from our previous business model. A failure to effectively communicate the strategic reasons for and messaging around the benefits of our Transformation could have potentially created confusion or other concerns that could have adversely impacted the Company. A targeted, robust investor relations campaign was critical for communicating the strategic reasons for the Transformation and giving investors confidence in our strategic plan and our ability to execute.
2021 Result: Simultaneous with announcing the execution of the purchase and sale agreement for the office portfolio, we released an investor presentation that provided the details of the strategic plan and the research that supported the reasons for the Transformation. Further, we held an investor call that day and subsequently met over 50 investors or analysts. We also significantly changed the format and content of our quarterly earnings release supplemental information to reflect our transformation into a multifamily REIT. Following this investor outreach, we currently have 6 multifamily analysts covering the Company.
| | | | | |
Performance Goal #5: Manage debt repayment to ensure targeted leverage and resyndicate line of credit |
| |
2021 Result | Goal Achievement |
Successfully used proceeds from sale of commercial assets to repay debt and renewed line of credit | 2 out of 2 points |
Why is this performance goal important? A lower leverage ratio makes our leverage ratio more comparable to the typical leverage ratios of other multifamily REITs and leaves us with the capacity and flexibility to take on additional debt in the future as we expand into Southeastern markets.
2021 Result: Part of the strategic plan was to delever WashREIT from a Net Debt/EBITDA ratio in the low 6x range to a ratio in the mid to high 5x range, which we achieved by using a portion of the proceeds from sales of the office and retail portfolios to prepay $300 million of notes payable with scheduled maturity in 2022 and $150
million of term loans with scheduled maturity in 2023. Additionally, our line of credit was scheduled to mature in 2022 (prior to exercising any extension options). Its renewal in August of 2021 ensured that we have this critical source of short-term liquidity while we pursue acquisitions in Southeastern markets and move forward as a multifamily REIT. As a result of these actions, we have no debt with scheduled maturity in 2021 and only $100.0 million of scheduled debt maturities within the following five years.
| | | | | |
Performance Goal #6: Build roadmap to define and execute long-term multifamily strategy |
| |
2021 Result | Goal Achievement |
Successfully prepared comprehensive roadmap | 2 out of 2 points |
Why is this performance goal important? The transformation from a diversified, regional REIT to a multifamily REIT operating in multiple markets requires a reimagining of how we conduct business. Successful execution of our long-term multifamily strategy requires that the Company optimize its operations to support multifamily communities in multiple markets. This effort includes creating a scalable operating platform, developing and implementing a detailed workforce plan, undergoing a comprehensive branding evolution, and investing in and implementing new information systems.
2021 Result: We successfully worked with a consulting firm to develop a detailed roadmap to execute the long-term multifamily strategy, which includes the plan to internalize property-level residential operations, and have communicated this roadmap to the Company’s employees.
As further described in 2022 Compensation Outlook, with our Transformation largely completed, we plan to revert back to our historical STIP design and implement financial performance metrics once again for fiscal year 2022.
Achievement of 2021 Individual Measures
In the case of the individual objectives (25% weighting) portion of the STIP, the Compensation Committee reviewed and determined the performance period,of Mr. McDermott and Mr. McDermott reviewed and determined the executive’s employment is terminatedperformance of each of the other executives. With respect to the Compensation Committee’s determination of Mr. McDermott’s performance and Mr. McDermott's determination of the performance of the other executives, the following factors were considered: the comprehensive planning and execution of the Company’s strategic Transformation, including refining our investment strategy based on extensive research to target high growth markets in the Southeast, developing an effective investor outreach campaign, performing extensive tax planning, successfully executing sales of substantially all of our office portfolio and our remaining retail portfolio in a challenging economic environment, beginning to reinvest those proceeds in multifamily assets in our target markets and creating a roadmap to internalize property-level residential operations. The Committee and Mr. McDermott also considered the continued successful execution of the capital plan, which has strengthened the balance sheet by Washington REIT without Cause, or the executive resigns
raising equity, renewing our revolving credit facility and further deleveraging by repaying
unsecured debt, delivering on our ESG priorities, strengthening our information technology infrastructure and cybersecurity protections, and the ongoing operational improvements within WashREIT. In addition to the factors above, with Good Reason, Retires, diesrespect to Mr. McDermott’s determination of the performance of the other executives, Mr. McDermott took into account the performance in 2021 of each executive in leading his or becomes subjecther respective department and WashREIT as a whole and in contributing to a Disability while employed by Washington REIT, the executive will receive an awardfinancial and operational accomplishments of WashREIT. The final determinations of the Compensation Committee and Mr. McDermott with respect to individual performance are reflected in the actual payout amounts for 2021 under the 2020 AmendedSTIP as presented in the Summary Compensation Table and Restated related footnotes within this Proxy Statement.
STIP but the award will be prorated basedPayout Determinations by Compensation Committee
Based on the period of employment duringresults outlined above, the performance period.Compensation Committee approved the following awards under the STIP in 2021:
| | | | | | | | | | | |
| Target 2021 STIP Award | | Actual 2021 STIP Award |
President and Chief Executive Officer | $ | 937,500 | | | $ | 1,410,000 | |
Executive Vice President | 418,500 | | | 712,463 | |
Senior Vice President | 227,500 | | | 376,250 | |
Long-Term Incentive Plan (LTIP)
Long-Term Incentive Compensation
Under the 2020 Amended and RestatedCurrent LTIP, all NEOs will haveexecutives are provided the opportunity to receiveearn awards based on (i) the achievement of performance measures (which may consist of one of more shareholder return measures and one or more strategic measures), which will beare established for each performance period, and (ii) continued employment with the Company. The aggregate weighting for the performance measures and the time-based measures, as determined by the Compensation Committee, will totaltotals 100%. TheEach year, the Compensation Committee will establish the threshold, target and high performance goals for each performance measures will consist, and upon or following completion of one or more shareholder return measures and one or more strategic measures.a performance period, the degree of achievement of each performance measure is determined by the Compensation Committee it its discretion. The awards earned under the 2020 Amended and RestatedCurrent LTIP if any, will beare payable in our common shares of beneficial interest. Because the shares awarded for the achievement of performance measures will be issued only after the three-year performance period has ended, no dividends will be paid on such shares until the actual performance has been achieved. Dividends will be paid on the shares awarded for continued employment from the date of grant. The Current LTIP is a “rolling” plan, with a new three-year performance period commencing on January 1 of each year.
Each participant’s total award under the 2020 Amended and RestatedCurrent LTIP with respect to a performance period will beis stated as a percentage of the participant’s annual base salary determined as of the beginning of thatthe performance period, which percentage will dependis dependent upon the participant’s position and the degree of achievement of threshold, target, and high performance goals for the performance period which, except as otherwise determined by the Compensation Committee, will beis as set forth in the table below:
| | | | | | | | | | | |
| Threshold | Target | High |
| | | |
President and Chief Executive Officer | 198% | 275% | 440% |
Executive Vice President | 143% | 200% | 295% |
Senior Vice President | 100% | 143% | 207% |
The Current LTIP provides that, following completion of a performance period, 100% of the performance-based award associated with such completed performance period vest immediately upon grant.
2021 LTIP Performance Measures Determined by Compensation Committee
In February 2021, the Compensation Committee determined that the allocation of awards for the performance period under the Current LTIP commencing on January 1, 2021 would be as follows:
|
| | | |
| Threshold | Target | High |
President and Chief Executive Officer | 198% | 275% | 440% |
Executive Vice President | 143% | 200% | 295% |
Senior Vice President | 100% | 143% | 207% |
Any time-based | | | | | | | | | | | | | | | | | |
| | | Performance Hurdles |
Pay Element | Weighting | Metric | Threshold | Target | High |
Performance-Based Equity | 60% | Relative TSR vs. Peer Group (30%) | 33rd percentile | 51st percentile | 76th percentile |
Relative TSR vs. FTSE Nareit Office/Residential Indices (30%) | 33rd percentile | 51st percentile | 76th percentile |
Time-Based Equity | 40% | Vests ratably over three years | |
This allocation was a change from the allocation of awards for the performance period under the Current LTIP commencing on January 1, 2020, which were allocated (1) 40% time-vesting (based on the Target award opportunity), (2) 30% vesting based on shareholder return (50% of which is calculated based on WashREIT’s TSR relative to the company’s 2020 peer group and the other 50% of which is calculated based on WashREIT’s TSR relative to the FTSE Nareit Diversified Index), and (3) 30% vesting based on achievement of strategic goal.
2021 Time-Based Awards – 40%
Time-based awards under the 2020 Amended and RestatedCurrent LTIP will beare subject to a three-year vesting schedule, with the award vesting in one-third increments on each December 15 of the applicable performance period if the participant remains employed by the Company on each of such dates. The 2020 Amended and Restated LTIP provides that following a
2021 Relative TSR (Peer Group) – 30%
For relative TSR (Peer Group), WashREIT’s TSR performance is measured over the applicable performance period 100%against a peer group of any performance-based award will vest immediately upon grant.
Each year,companies selected by the Compensation Committee, after consultation with its independent compensation consultant, at the beginning of the performance period. See "- Role of Compensation Consultant and 2021 Peer Group Analysis". Prior to determining performance for an applicable period, the Compensation Committee will establishremove companies from the peer group for such period that cease to be peer group companies as a result of acquisitions, divestitures and other similar actions. Threshold, target and high performance goalslevels for Relative TSR (Peer Group) are the 33rd, the 51st and the 76th percentiles, respectively. If relative TSR falls between these percentiles, the actual relative TSR performance level is to be determined by linear interpolation (with an associated payout level in between threshold and target performance levels, or target and high performance levels, as applicable). If relative TSR falls below the applicable threshold level, the portion of the award that is dependent on such goal will not be paid.
2021 Relative TSR (FTSE Nareit Office and Residential Indices) – 30%
For relative TSR (FTSE Nareit Office and Residential Indices), WashREIT’s TSR performance is compared against that of the companies comprising the FTSE Nareit Office and Residential Indices. Each index will be weighted based on total net operating income over the performance period for each respective sector as a percentage of net operating income for each of the Company’s office and multifamily portfolios. Threshold, target
and high performance measure. Uponlevels for relative TSR (FTSE Nareit Office and Residential Indices) are the 33rd, the 51st and the 76th percentiles, respectively. If relative TSR falls between these percentiles, the actual relative TSR performance level is to be determined by linear interpolation (with an associated payout level in between threshold and target performance levels, or target and high performance levels, as applicable). If relative TSR falls below the applicable threshold level, the portion of the award that is dependent on such goal will not be paid.
The grant date fair values for the awards under the Current LTIP for 2021 are presented in the Summary Compensation Table and related footnotes within this Proxy Statement.
Prior Long-Term Incentive Plan
Under our prior long-term incentive plan, as in effect for performance periods beginning prior to 2020 (the “Prior LTIP”), executives were provided the opportunity to earn awards based on achieving TSR performance objectives across a three-year performance period, which, if earned, are payable 75% in unrestricted shares and 25% in restricted shares. These unrestricted shares and restricted shares are to (1) in the case of the restricted shares only, vest over a one-year period commencing on the January 1 following completionthe end of the three-year performance period, (2) consist of an aggregate number of shares determined by dividing the dollar amount payable in unrestricted shares and restricted shares by the closing price per share on such January 1 and (3) be issued within 2 1/2 months of the end of the three-year performance period. Washington REIT must pay dividends currently on the restricted shares described above in this paragraph. Because restricted shares under the Prior LTIP will only be issued after the three-year performance period has ended, no dividends will be paid on restricted shares until the actual performance has been achieved. Each executive’s total award opportunity under the Prior LTIP, stated as a percentage of base salary, for the achievement of threshold, target and high-performance requirements is set forth in the table below:
| | | | | | | | | | | |
| Threshold | Target | High |
President and Chief Executive Officer | 80% | 150% | 270% |
Executive Vice President | 50% | 95% | 170% |
Senior Vice President | 40% | 80% | 140% |
For purposes of calculating award payouts at the conclusion of each three-year performance period, the degreetarget level is determined for each executive as of achievementthe beginning of eachthe applicable performance measures willperiod. Each TSR goal is measured over a three-year performance period based on a share price determination made at the beginning and end of the performance period and dividends paid with respect to the common shares during the performance period. For purposes of calculating total shareholder return metrics, the “starting price” equals the average closing price for the 20-trading day period beginning on the first trading day of the performance period. The “ending price” equals the average closing price for the last 20 trading days of the performance period. Prior LTIP performance is evaluated on both of the following TSR performance goals and weightings:
| | | | | | | | | | | | | | |
| | Performance Hurdles |
Pay Element | Weighting | Threshold | Target | High |
Relative TSR v. Peer Group | 50% | 33rd percentile | 51st percentile | 76th percentile |
Relative TSR v. FTSE Nareit Diversified Index | 50% | 33rd percentile | 51st percentile | 76th percentile |
If relative TSR falls between these percentiles, the actual relative TSR performance level is to be determined by linear interpolation (with an associated payout level in between threshold and target performance levels, or target and high performance levels, as applicable). If relative TSR falls below the applicable threshold level, the portion of the award that is dependent on such goal will not be paid.
LTIP Payout Determinations by Compensation Committee
With respect to TSR goals under the Prior LTIP, the Compensation Committee it its discretion.
Ifreviewed the total shareholder return calculations against Prior LTIP metrics with respect to the award opportunity that had a Change in Control (as defined in the 2020 Amended and Restated LTIP) occurs during athree-year performance period while the participant is employed, the 2020 Amended and Restated LTIP provides that all time-based awards which are unvested will become vested, and the participant will receive the shareholder return measure-based awards calculated using the dateending on December 31, 2021.
As of the Change in Control, and the strategic measure-based awards will be calculated at target. If duringend of the performance period, WashREIT’s relative TSR ranked at the executive’s employment is terminated by Washington REIT without Cause, or60th percentile with respect to the executive resignscompany peer group and the 53rd percentile with Good Reason, Retires, dies or becomes subjectrespect to a Disability while employed by Washington REIT, the executive will receive an awardFTSE index peers, each of which was between target and high performance. Pursuant to the terms of the Prior LTIP, the Compensation Committee approved the following awards under the 2020 Amended and RestatedPrior LTIP butfor the award will be prorated based on thethree-year performance period of employment during the performance period.ending December 31, 2021:
| | | | | | | | | | | | | | |
| Target 2019-2021 LTIP Award | Target 2019-2021 LTIP Award (as percentage of base salary) | Actual 2019-2021 LTIP Award | Actual 2019-2021 LTIP Award (as a percentage of Target 2019-2021 LTIP Award) |
President and Chief Executive Officer | $ | 975,000 | | 150% | $ | 1,159,800 | 119% |
Executive Vice President | 403,750 | | 95% | 479,269 | 119% |
Senior Vice President | 260,000 | | 80% | 306,200 | 118% |
Other Executive Compensation Components
CEO Employment Matters
Employment Letter
On August 20, 2013, Washington REIT announced that it had selected Mr. McDermott to be its new President and Chief Executive Officer and had entered into an employment letter specifying the terms of his employment. The employment letter specified that Mr. McDermott’s annual base salary would initially be $500,000. After December 31, 2014, the Board agreed to review his base salary on an annual basis and may increase it in its discretion. In connection with entering into the employment letter, Mr. McDermott was awarded 21,000 restricted common shares on his start date, which was October 1, 2013. These shares were agreed to vest in equal installments of 7,000 shares each over a three-year period while he remains employed, on the first, second and third anniversary dates of his start date. As of October 1, 2016, all of these shares had vested. Under the employment letter, effective January 1, 2014, Mr. McDermott became eligible to participate in the STIP and LTIP at the Chief Executive Officer level, in accordance with the terms of the STIP and the LTIP, as they may be amended by the Board for all participating employees generally from time to time.
The employment letter provided that Mr. McDermott is entitled to an automobile allowance of $14,000 per year and reimbursement of up to $15,000 for legal expenses for reviewing the employment letter. The employment letter also entitles Mr. McDermott to a 401(k) match and participation in our supplemental executive retirement plan (“SERP”). The employment letter requires Mr. McDermott to protect the confidentiality of Washington REIT confidential information and comply with Washington
REIT’s stock ownership guidelines described below in this Proxy Statement. It further provided that he would enter into the form of indemnification agreement entered into by and between Washington REIT and its other officers and Board members.
The employment letter provides that either Mr. McDermott or Washington REIT may terminate the employment relationship at any time for any lawful reason, with or without Cause, Good Reason (as defined below) or notice. If Mr. McDermott’s employment is terminated without Cause or he terminates for Good Reason, he would receive the following severance benefits, payable in installments according to Washington REIT’s payroll cycle, and pro-rata portions of any STIP and LTIP values as determined by the applicable plans, provided that he signs Washington REIT’s standard separation agreement and general release. If Mr. McDermott were to be terminated without Cause or for Good Reason, he would receive 12 months of base salary.
Under the employment letter, “Cause” means commission of a felony or crime of moral turpitude; conduct in the performance of duties that is illegal, dishonest, fraudulent or disloyal; breach of any fiduciary duty owed to Washington REIT; any action or inaction that constitutes a material breach of the employment letter that is not cured to Washington REIT’s reasonable satisfaction within 30 days of receipt of written notice advising of such material breach; or gross neglect of duty that is not cured to Washington REIT’s reasonable satisfaction within 30 days of receipt of written notice advising of such gross neglect. “Good Reason” means a material diminution in base salary or a material diminution in overall base compensation earning potential that is not agreed to by the employee (other than due to failure to achieve performance-based measures), a material diminution in authority, duties or responsibilities, a material change in geographic location at which the employee is employed, or any action or inaction by Washington REIT that constitutes a material breach of the employment letter, provided the employee gives written notice within 90 days after the condition providing the basis for such Good Reason first exists and such Good Reason has not been corrected or cured within 30 days after Washington REIT has received written notice of the employee’s intent to terminate his employment for Good Reason and specifying in detail the basis for such termination.
June 2017 CEO Equity Award
On June 1, 2017, the Board approved a one-time equity award to Mr. McDermott to recognize Mr. McDermott’sin recognition of his significant contribution to Washington REIT’sWashREIT’s performance and to further incentivize Mr. McDermott’sas an incentive for his continued service to Washington REIT.WashREIT. The Board based its decision on the recommendation of the Compensation Committee. The Compensation Committee recognized, among other things, that Mr. McDermott has been a key component of Washington REIT’sWashREIT’s improved performance since the date he joined Washington REIT. DuringWashREIT (total shareholder return during Mr. McDermott’s tenure with Washington REIT through the date of the award total shareholder return was approximately 50.7%. Additionally, the Compensation Committee considered) and that Mr. McDermott’shis departure would significantly disrupt Washington REITWashREIT and its performance. The Compensation Committee, after consultations with FPL,FPC, and after considering Mr. McDermott’s
performance as well as his current level of compensation relative to peer company compensation, recommended approval of a one-time equity award in the form of 100,000 restricted shares of Washington REIT. The Compensation Committee recognized the importanceWashREIT, all of incentivizing continued long-term service to Washington REIT and structured the award so that all 100,000 restricted shares do notwhich vest untilon the fifth anniversary of the grant date, at which time 100% of the restricted shares will vest, subject to Mr. McDermott’s continued employment with Washington REITWashREIT until such vesting date. Based on the closing price of Washington REIT’s stock on the grant date, the value of the award was $3,261,000. The restricted shares were granted out of and in accordance with Washington REIT’sthe 2016 Omnibus Incentive Plan. The Compensation Committee does not expect the one-time equity award to be a recurring portion of Mr. McDermott’s compensation.
CFO Employment Letter
On January 18, 2015, Washington REIT entered into an employment letter with Mr. Riffee specifying the terms of his employment. Pursuant to Mr. Riffee’s employment letter, Mr. Riffee participates in Washington REIT’s executive compensation program, including the STIP and LTIP, at the Executive Vice President level, with the following modifications: (1) Mr. Riffee’s base annual salary was $400,000 per annum (rather than $350,000), (2) his participation in the STIP and LTIP took effect as of January 1, 2015, and (3) his STIP target was 175% (rather than 186%), split evenly between the cash component of 87.5% and the restricted share component of 87.5%. Mr. Riffee was also awarded 5,287 RSUs valued at $150,000, granted under Washington REIT’s 2007 Omnibus Long-term Incentive Plan, on his first date of employment. These 5,287 RSUs are fully vested.
For 2015 and 2016, Mr. Riffee’s threshold, target and high award opportunities under the STIP for each of the cash component and the restricted share component were determined by the Compensation Committee to be 42%, 87.5% (as noted above) and 140%, respectively. Mr. Riffee’s threshold, target and high award opportunities under the LTIP were determined by the Compensation Committee to be 44%, 95% and 149%, respectively. Effective January 1, 2017, the separate award opportunities for Mr. Riffee under the STIP and LTIP were eliminated so that all Executive Vice Presidents now have the same LTIP and STIP opportunities, including under the 2020 Amended and Restated STIP and 2020 Amended and Restated LTIP.
COO Employment Letter
On April 5, 2014, Washington REIT entered into an employment letter with Mr. Bakke specifying the terms of his employment. Pursuant to Mr. Bakke’s employment letter, Mr. Bakke was awarded $100,000 in RSUs, granted under Washington REIT’s 2007 Omnibus Long-term Incentive Plan, on his first date of employment. These 4,151 RSUs are fully vested. Mr. Bakke retired effective March 8, 2019. See - "Separation Agreement" for additional information.
General Counsel Employment Letter
On April 5, 2017, Washington REIT entered into an employment letter with Ms. Fielder specifying the terms of her employment. Pursuant to Ms. Fielder’s employment letter, Ms. Fielder was awarded $75,000 in RSUs, granted under Washington REIT’s 2016 Omnibus Incentive Plan, on her first date of employment, which was March 29, 2017. These 2,431 RSUs are subject to vest in five equal installments over a five-year period, on the first, second, third, fourth and fifth anniversaries of such date.
Supplemental Executive Retirement Plan
Because the Internal Revenue Code of 1986 (the “Code”) limits the benefits that would otherwise be provided by our qualified retirement programs, Washington REITWashREIT provides a SERP for the benefit of the NEOs. This plan was established in November 2005 and is a defined contribution plan under which, upon a participant’s termination of employment from Washington REITWashREIT for any reason other than cause (as defined in the SERP), the participant will be entitled to receive a benefit equal to the participant’s accrued benefit times the participant’s vested interest. A participant’s benefit accrues over years of service. Washington REITWashREIT makes contributions to the plan on behalf of the participant ranging from 9%9.5% to 17%19% of base salary. The exact contribution percentage is based on the participant’s current age and service such that, at age 65, the participant could be expected
to have an accumulation (under assumptions made under the plan) that is approximately equal to the present value of a life annuity sufficient to replace 40% of his or her final three year average salary. Vesting generally occurs based on a minimum of 10 years of service or upon death, total and permanent disability, involuntary discharge other than for cause, or retirement or voluntary termination if the participant does not engage in prohibited competitive activities during the two-year period after such retirement or voluntary termination.
Washington REITWashREIT accounts for this plan in accordance with Accounting Standards Codification (“ASC”) 710, Compensation - General and ASC 320, Investments - Debt and Equity Securities, whereby the investments are reported at fair value, and unrealized holding gains and losses are included in earnings. For the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, Washington REITWashREIT recognized current service cost of $206,000, $259,000$229,000, $229,000 and $251,000,$206,000, respectively.
Severance Plan
On August 4, 2014, the Board and Compensation Committee adopted an Executive Officer Severance Pay Plan to provide specified benefits to executive officers in the event of their termination of employment from Washington REIT.WashREIT. Under the severance plan, in the event of a qualifying termination of employment of an executive officer, the executive officer will be entitled to receive a severance payment, equal to a number of weeks of severance pay, in accordance with the following matrix:based on his or her base salary and number of years of service.
|
| | |
Weeks of Severance Pay |
| Base Salary |
Years of Service | $170K but less than $225K | $225K or more |
Less than 1 | 12 | 14 |
1-4 | 16 | 18 |
5 | 18 | 20 |
6 | 20 | 22 |
7 | 22 | 24 |
8 | 24 | 26 |
9 | 26 | 28 |
10 | 28 | 30 |
11 | 30 | 32 |
12 | 32 | 34 |
13 | 34 | 36 |
14 | 36 | 38 |
15 | 38 | 40 |
16 | 40 | 42 |
17 | 42 | 44 |
18 | 44 | 46 |
19 | 46 | 48 |
20 | 48 | 50 |
21 | 50 | 52 |
22 or more | 52 | 52 |
In addition to the severance pay set forth above, underUnder the severance plan each executive officer will also be entitled to receive a severance benefit comprised of an ongoing payment from Washington REITWashREIT equal to the employer portion of current medical, dental and vision elections for the period of severance (or, if less, the applicable Consolidated Omnibus Budget Reconciliation Act (“COBRA”)
payment). Any severance pay and severance benefits described above will be subject to applicable payroll and tax withholding.
Under the severance plan, for an executive officer to be eligible for severance pay and severance benefits, the termination of such executive officer must be by Washington REIT without “Cause” (as defined in the severance plan) or by resignation of the executive officer for “Good Reason” (as defined in the severance plan). Washington REIT also has the discretion under the severance plan to pay severance pay and benefits in other involuntary termination scenarios and to pay supplemental severance pay. In all cases, the executive officer must execute and not revoke Washington REIT’s standard form of separation agreement applicable to executive officers in order to receive severance pay and benefits. Washington REIT will be required to make the severance payment in a lump sum on or before March 15 of the calendar year following the calendar year in which the executive officer is terminated, but such portion of the payments (if any) that would constitute deferred compensation under Section 409A of the Code will not be paid until at least six months after the executive officer’s termination if the executive officer is also a
“specified employee” under the provisions of the Code. The severance pay and severance benefits under the severance plan are in addition to, and not in lieu of, any applicable equity vesting, acceleration of payment or other benefits that may exist under the LTIP, the STIP, the SERP and other compensation plans. If the executive officer is entitled to severance payments under a change in control agreement with Washington REIT,WashREIT, then the executive officer will not also receive payment under the severance plan. In addition, for the President and Chief Executive Officer, he will be entitled to the severance payments under the severance plan or his employment letter with Washington REIT,WashREIT, whichever is greater. The severance plan defines participating executive officers to be officers at the level of President and Chief Executive Officer, Executive Vice President or Senior Vice President.
Deferred Compensation Plan
Beginning in 2007, Washington REITWashREIT adopted a plan that allows officers to voluntarily defer salary and STIP awards. The plan allows any officer to defer a percentage or dollar amount of his or her salary and/or his or her STIP awards. The amounts deferred are not included in the officer’s current taxable income and, therefore, are not currently deductible by us. Salary deferrals are credited during the year with earnings based on the weighted average interest rate on Washington REIT’sWashREIT’s fixed rate bonds as of December 31 of each calendar year. STIP awards are deferred as RSUs, with a 25% match of RSUs on the deferred amount. The 25% match vests in full after three years. The RSUs are credited with an amount equal to the corresponding dividend paid on Washington REIT’sWashREIT’s common shares. Participants may elect to defer receipt of payments to a specified distribution date that is at least three years from the first day of the year to which the salary deferred related or, if applicable, at least five years from any previously designated distribution date. If a participant has not elected to further defer a distribution beyond the original designated distribution date, then payment will commence upon the earliest of (1) the original specified distribution date, (2) the date the participant terminates employment from Washington REIT,WashREIT, (3) the participant’s death, (4) the date the participant sustains a total and permanent disability, or (5) a change in control. Amounts deferred into RSUs will be paid in the form of shares. The plan is unfunded and payments are to be made from general assets of Washington REIT.WashREIT. Currently, none of our NEOs participate in this plan.
Change in Control Termination Agreements
TheWe maintain change inof control agreements with the NEOs discussed below provide for continuation of payments and benefits by Washington REIT in the event of termination due to a “change in control” (as defined in these agreements). The basic rationale for these change in control protections is to diminish the potential distractions due to personal uncertainties and risks that inevitably arise when a change in control is threatened or pending.
The termination benefits payable in connection with a change in control require a “double trigger,” which means that (1) there is a “change in control” (as that term is defined in the applicable agreement) and (2) after the change in control, the covered NEO’s employment is “involuntarily terminated” by Washington REIT or its successor not for “cause” (as both terms are defined in the applicable agreement), but including a termination by the executive because his duties, responsibilities or compensation are materially diminished, within 24 to 36 months of the change in control (as such period is specified in the covered NEO’s agreement). In addition, if one of the foregoing terminations of employment occurs in the 90-day period before the change in control, the termination will be presumed to be due to the change in control unless Washington REIT can demonstrate to the contrary. A double trigger was selected to enhance the likelihood that an executive would remain with Washington REIT after a change in control because the executive would not receive the continuation of payments and benefits if he or she voluntarily resigned after the change in control. Thus, the executive is protected from actual or constructive dismissal after a change in control and any new controlling party or group is better able to retain the services of a key executive.
The formula to calculate the change in control benefit is similar for each of the NEOs, with the variable being whether the benefit will be paid for 24 or 36 months. The formula is as follows:
A. A continuation of base salary at the rate in effect as of the termination date for a period based on the levels below:
|
| |
Executive Position | Period |
Chief Executive Officer | 36 months |
Executive Vice Presidents | 24 months |
Senior Vice Presidents | 24 months |
B. Payment of an annual bonus for each calendar year or partial calendar in which the NEO receives salary continuation as described above, in an amount equal to the average annual short-term incentive plan compensation received during the three years prior to the involuntary termination.
C. Payment of the full cost to continue coverage under Washington REIT’s group health insurance plan pursuant to COBRA for the period of time the NEO receives salary continuation up to a maximum of 18 months or until the NEO obtains other comparable coverage, whichever is sooner.
D. Immediate vesting in all unvested common share grants, RSUs, performance share units and dividend equivalent units granted to the NEO under Washington REIT’s 2007 Omnibus Long-Term Incentive Plan or Washington REIT’s 2016 Omnibus Incentive Plan and immediate vesting in the deferred compensation plans.
In addition to our change in control agreements, our STIP and LTIP (and 2020 Amended and Restated STIP and 2020 Amended and Restated LTIP) each provide for particular awards to be made in the event of a change in control that occurs during the performance period under each such plan. These awards are described in further detail under the headings “Short-Term Incentive Plan (STIP)” and “Long-Term Incentive Plan (LTIP)” above.NEOs. For further information on Change of Control payments, see “Potential Payments upon Termination or Change in Control” on page 79.71.
Separation Agreement
InOn February 2019, Washington REIT announced25, 2022, Taryn D. Fielder and the retirement of Thomas Q. Bakke,Company agreed to a mutual separation, pursuant to which took effectMs. Fielder tendered her resignation. Such resignation was effective on March 8, 2019.February 25, 2022. In connection therewith, on February 15, 2019,March 5, 2022, the Company and Mr. BakkeMs. Fielder entered into a SeparationSeverance Agreement and General Release (as amended, the(the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Bakke becameMs. Fielder received a severance payment of $121,154. The Company also agreed to subsidize her COBRA health premium for 5 months. Further, Ms. Fielder received (a) an award under the Washington Real Estate Investment Trust Amended and Restated Executive Officer Short-Term Incentive Plan with respect to the 2022 performance period equal to the prorated amount of Ms. Fielder’s target bonus opportunity, with such proration calculated based on the number of days during the performance period Ms. Fielder was an employee, (b) an award under the Washington Real Estate Investment Trust Amended and Restated Executive Officer Long-Term Incentive Plan with respect to the Shareholder Return Equity Grant under each of the 2020-2022 LTIP cycle, the 2021-2023 LTIP cycle, and the 2022-2024 LTIP cycle, of fully vested in his entire accountshares based on the actual levels of achievement of the applicable shareholder return measures as of February 25, 2022, and with respect to the Strategic Goals Equity Grant under the Company’s SERP. Additionally, under2020-2022 LTIP cycle and the 2022-2024 LTIP cycle, of fully vested shares based on the target level of achievement for the Strategic Goals Equity Grant, in each case, with the number of shares prorated based on the number of days during the applicable performance period Ms. Fielder was an employee, (c) vesting of all unvested restricted shares and restricted share units, and (d) the vesting of Ms. Fielder’s existing account balance and distribution in accordance with the Washington Real Estate Investment Trust Supplemental Executive Retirement Plan. Pursuant to the Separation Agreement, the Company fully accelerated the vestingagreed to a general release of all of Mr. Bakke’s outstanding equity-based awards under the Company’s 2016 Omnibus Incentive Plan, as amended from time to time,claims against Ms. Fielder, and the Company’s 2007 Omnibus Long-Term Incentive Plan, that were unvested as of the date of his retirement. In addition, Mr. Bakke received those portions of his outstanding awards as calculated and delivered in accordance with the terms of the Company’s LTIP as of the date of his retirement. Pursuant to the Separation Agreement, Washington REITMs. Fielder agreed to a general release of claims against the officer, and the officer agreed to a general release of claims against Washington REIT.Company. The Separation Agreement also contains confidentiality and non-solicitation obligations and other customary provisions. The Separation Agreement also contained a one-year non-compete.
Perquisites
NEOs participate in other employee benefit plans generally available to all employees on the same terms. In addition, the NEOs are provided with supplemental life insurance and in some cases granted an automobile allowance and/or provided an executive physical. The Compensation Committee believes that these benefits are reasonable and consistent with its overall compensation program toand that such benefits better enable Washington REITWashREIT to attract and retain key employees. For more information on specific benefits and perquisites, see the footnotes to the Summary Compensation Table.
2022 Compensation Outlook
2022 Short-Term Incentive Plan
Having completed our transformation in 2021, the Compensation Committee intends to return to our typical STIP framework in 2022. The Compensation Committee has approved a formula that will include threshold, target and
high performance goals for the following measures,which it believes are critical to the Company’s 2022 performance:
| | | | | | | | | | | | |
Performance Criteria | | Weighting | | |
Core FFO/share1 | | 25% | | |
Same Store Multifamily NOI Growth2,3 | | 15% | | |
Total Non-Same Store Multifamily NOI2,3 | | 10% | | |
Net Debt to Adjusted EBITDA at 12/31/2022 (Annualized)4,5 | | 10% | | |
Project Reimagine milestones6 | | 15% | | |
Individual Performance | | 25% | | |
1 Core Funds From Operations (“Core FFO”) is calculated by adjusting NAREIT FFO for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt and gains or losses on interest rate derivatives, (2) expenses related to acquisition and structuring activities, (3) executive transition costs, severance expenses and other expenses related to corporate restructuring and executive retirements or resignations, (4) property impairments, casualty gains and losses, and gains or losses on sale not already excluded from NAREIT FFO, as appropriate, (5) relocation expense and (6) transformation costs. These items can vary greatly from period to period, depending upon the volume of our acquisition activity and debt retirements, among other factors. We believe that by excluding these items, Core FFO serves as a useful, supplementary measure of Washington REIT’s ability to incur and service debt, and distribute dividends to its shareholders. Core FFO is a non-GAAP and non-standardized measure, and may be calculated differently by other REITs.
2 Same-store Portfolio Properties include properties that were owned for the entirety of the years being compared, and exclude properties under redevelopment or development and properties acquired, sold or classified as held for sale during the years being compared. We categorize our properties as "same-store" or "non-same-store" for purposes of evaluating comparative operating performance. We define development properties as those for which we have planned or ongoing major construction activities on existing or acquired land pursuant to an authorized development plan. Development properties are categorized as same-store when they have reached stabilized occupancy (90%) before the start of the prior year. We define redevelopment properties as those for which have planned or ongoing significant development and construction activities on existing or acquired buildings pursuant to an authorized plan, which has an impact on current operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. We categorize a redevelopment property as same-store when redevelopment activities have been complete for the majority of each year being compared.
3 Net Operating Income (“NOI”), defined as real estate rental revenue less direct real estate operating expenses, is a non-GAAP measure. NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain or loss on sale, if any), plus interest expense, depreciation and amortization, lease origination expenses, general and administrative expenses, acquisition costs, real estate impairment, casualty gain and losses and gain or loss on extinguishment of debt. NOI does not include management expenses, which consist of corporate property management costs and property management fees paid to third parties. They are the primary performance measures we use to assess the results of our operations at the property level. We also present NOI on a cash basis ("Cash NOI") which is calculated as NOI less the impact of straight-lining apartment rent concessions. We believe that each of NOI and Cash NOI is a useful performance measure because, when compared across periods, they reflect the impact on operations of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from net income. NOI and Cash NOI exclude certain components from net income in order to provide results more closely related to a property’s results of operations. For example, interest expense is not necessarily.
4 Net debt is calculated by subtracting cash and cash equivalents from total outstanding debt as per our consolidated balance sheets at the end of the period.
5 Adjusted EBITDA is a non-GAAP measure defined as earnings before interest expense, taxes, depreciation, amortization, gain/loss on sale of real estate, casualty gain/loss, real estate impairment, gain/loss on extinguishment of debt, restructuring expenses (which include severance, accelerated share-based compensation and other expenses related to a restructuring of corporate personnel), acquisition expenses and gain from non-disposal activities. We consider Adjusted EBITDA to be an appropriate supplemental performance measure because it permits investors to view income from operations without the effect of depreciation, and the cost of debt or non-operating gains and losses.
6 “Project Reimagine” is the name the Company has given its operational transformation efforts. Milestones will include designing and executing a new operating model, constructing a comprehensive human resources program of the multifamily industry, successfully completing a new core technology platform, creating a new brand for the Company, assumption of management of the multifamily portfolio.
2022 Long-Term Incentive Plan
For 2022, the Company’s long-term incentive plan will continue to have two components: (i) time-based awards, which will comprise 40% of the total long-term incentive plan awards and will vest over a three year period, and (ii) performance-based awards, which will comprise 60% of the total long-term incentive plan awards.
Within the performance-based awards component, the Compensation Committee has approved a formula that will include threshold, target and high as follows:
| | | | | | | | | | | | | | |
| Percentage of Performance-Based Award | Threshold | Target | High |
Relative Total Shareholder Return | 75% | 33rd percentile | 51st percentile | 76th percentile |
Strategic Performance Component1 | 25% | 30% | 35% | 40% |
1 Based on NOI outside of the Washington D.C. Metro region as a percentage of total NOI of the Company on December 31, 2024.
Policies Applicable to Executives
Clawback Policy
Washington REITWashREIT has adopted a clawback policy with respect to the return (clawback) from executive officers of incentive compensation. The policy states that, with respect to any incentive awards granted after March 20, 2013, the Board will have the right to seek to recoup all or any portion of the value of such awards in the event of a material restatement of Washington REIT’sWashREIT’s financial statements covering any of the three fiscal years preceding the payment of an award which results from fraud or misconduct committed by a recipient of such award. The Board may seek recoupment from any award recipient whose fraud or misconduct gave rise or contributed to the restatement. The value with respect to which recoupment may be sought will be determined by the Board. Further, it is the intention of the Board that, to the extent that the final clawback provisions adopted by the SEC and the NYSE differ from the foregoing policy, the foregoing policy will be amended to conform to the final provisions.
Hedging Prohibition Policy
To prevent speculation or hedging in our shares by trustees, officers or employees, Washington REITWashREIT has adopted a policy prohibiting hedging. The policy states that Washington REITWashREIT strictly prohibits any trustee, officer or employee from engaging in any type of hedging or monetization transactions to lock in the value of his or her Washington REITWashREIT share holdings. Such transactions, while allowing the holder to own Washington REITWashREIT shares without the full risks and rewards of ownership, potentially separate the holder’s interest from those of the other Washington REITWashREIT shareholders. Therefore, no Washington REITWashREIT trustee, officer or employee is permitted to purchase or sell any derivative securities relating to Washington REITWashREIT shares, such as exchange-traded options to purchase or sell Washington REITWashREIT shares, or other financial instruments that are designed to hedge or offset any decrease in the market value of Washington REITWashREIT shares (including but not limited to prepaid variable forward contracts, equity swaps, collars and exchange funds).
Margin Loan Prohibition Policy
Washington REITWashREIT maintains a policy that no executive officer may take a margin loan for which Washington REIT’sWashREIT’s shares are used, directly or indirectly, as collateral for the loan. Such persons are also prohibited from otherwise pledging Washington REITWashREIT securities as collateral for a loan agreement.
Executive Ownership Policy
The Compensation Committee believes that common share ownership allows our executives to better understand the viewpoint of shareholders and incentivizes them to enhance shareholder value by aligning their interests with shareholders’ interests. To that end, in 2010, the Compensation Committee and Board adopted a formal share ownership policy. The share ownership policy requires each executive to retain an aggregate number of common shares having a market value at least equal to a specified multiple of such executive’s annual base salary. The aggregate number of common shares required to be held by each executive is determined based on the executive’s base salary (determined as of eachthe date they first become subject to the share ownership policy and calculated using the market value of common shares over the 60 trading days prior to such date. Once established, an executive’s datecommon share ownership goal will not change because of hire).changes in his or her annual base salary or fluctuations in WashREIT’s common share price. The applicable multiples of base salary required to be held are as follows:
|
| | | | |
Title | | Multiple of Base Salary | |
Chief Executive Officer and President | | | 3.0x | |
Executive Vice Presidents | | | 2.0x | |
Senior Vice Presidents | | | 1.0x | |
The policy requires that each executive attain the applicable share ownership level set forth above within five years after his or her date of employment with Washington REIT. The aggregate number of common shares required to be held by each executive is determined based on the market value of common shares over the 60 trading days prior to the date of such hiring or promotion, as applicable. Once established, an executive’s common share ownership goal will not change because of changes in his or her base salary or fluctuations in Washington REIT’s common share price.WashREIT. The policy also contains additional terms and conditions, including an interim ownership requirement for executives during the transition period to the full requirements.
The multiples of base salary reflected in the share ownership guidelines above were determined by the Compensation Committee based on the recommendation of the Hay Group (the Compensation Committee’s consultant at the time the share ownership guidelines were adopted), which had presented the Compensation Committee with a survey of share ownership requirements in the peer group utilized by the Compensation Committee for 2010 compensation and a survey of share ownership practices of large public companies.
Tax Deductibility of Executive Compensation
As a result of the Tax Cuts and Jobs Act, effective January 1, 2018, Section 162(m) of the Code generally disallows a tax deduction to public companies for individual compensation in excess of $1 million paid to its chief executive officer, chief
financial officer, and each of its three other most highly compensated executive officers (including individuals who formerly held these positions), in any taxable year unless such compensation is covered by the grandfather rule for certain items of compensation paid pursuant to a written binding contract that was in effect on November 2, 2017. Following shareholder approval of our 2016 Omnibus Incentive Plan and prior to January 1, 2018, the benefits under our short-term incentive and long-term incentive plans were able to qualify as “performance based” under Section 162(m) and therefore were eligible to be exempt from the $1 million deduction limitation as “performance based” compensation. To the extent that compensation paid to Washington REIT’sWashREIT’s executive officers is subject to and does not qualify for deduction under Section 162(m), Washington REITWashREIT is prepared to exceed the limit on deductibility under Section 162(m) to the extent necessary to establish compensation programs that we believe provide appropriate incentives and reward our executives relative to their performance. Washington REITWashREIT believes that it must maintain the flexibility to take actions that may not qualify for tax deductibility under Section 162(m) if it is deemed to be in the best interests of Washington REIT.WashREIT.
Compensation Committee Matters
The Compensation Committee is responsible for approving executive compensation decisions and making recommendations to the Board. The Compensation Committee is also responsible for approving and making recommendations to the Board with respect to other employee compensation and benefit plan matters. In addition, the Compensation Committee is required to produce an annual report on executive compensation for inclusion in our proxy statement, in accordance with applicable SEC rules and regulations.
The Compensation Committee is comprised of at least three and no more than six independent members of the Board (as the term “independent” is defined in the applicable listing standards of the New York Stock Exchange). The current Compensation Committee charter was adopted on October 18, 2017. A copy of the Compensation Committee Charter can be found on our website at www.washreit.com, under the heading “Investors” and subheading “Corporate Governance - Governance Documents.”December 17, 2020. Among other matters, the Compensation Committee charter provides the Compensation Committee with the independent authority to retain
and terminate any compensation consulting firms or other advisors to assist in the evaluation of trustee, Chief Executive Officer and other executive compensation.
The Compensation Committee meets at least once annually or more frequently as circumstances require. Each meeting allows time for an executive session in which the Compensation Committee and outside advisors, if requested, have an opportunity to discuss all executive compensation issues without members of management being present.
Compensation Consultant Matters
Pursuant to the Compensation Committee charter, the decision to retain an independent consultant (as well as other advisors) is at the sole discretion of the Compensation Committee, and any such independent consultant works at the direction of the Compensation Committee. In establishing 2019 executive compensation levels and adjustments to the 2020 executive compensation levels, the Compensation Committee Chairman worked with FPL to determine the scope of work to be performed to assist the Compensation Committee in its decision-making processes. In conducting its work on 2019 executive compensation levels for the Compensation Committee, FPL also interacted with other members of the Compensation Committee, the Lead Independent Trustee, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer.
As noted above, FPL provided the Compensation Committee with competitive pay analysis regarding both the broader market (including the NAREIT survey) and a group of public REITs. FPL attended Compensation Committee meetings and, upon request by the Compensation Committee, executive sessions to provide advice and counsel regarding decisions facing the Compensation Committee.
The Compensation Committee has reviewed its relationship with FPL to ensure that FPL is independent from management. This review process includes a review of the services FPL provides, the quality of those services, and fees associated with the services during the fiscal year, as well as consideration of the factors impacting independence that are set forth in NYSE rules.
Compensation Policies and Risk Management
TheAs part of the Board's oversight of WashREIT's risk management policies, the Compensation Committee members evaluate the principal elements of executive and non-executive compensation to determine whether they encourage excessive risk-taking. While the Compensation Committee members focus primarily on the compensation of the executive officers because risk-related decisions depend predominantly on their judgment, they also consider other Washington REITWashREIT employees operating in decision-making capacities. The Compensation Committee believes
that because of the following there is a low likelihood that our compensation policies and practices would encourage excessive risk-taking:
RISK MITIGATION FACTORS
•The executive compensation program contains a mix of salary, cash bonus and long-term equity-based compensation with a heavier weighting on long-term equity, commencingwhich commenced in 2020.
•Each of the LTIP and STIP (including as amended in 2020) areis based upon pre-existing measures which are set at the beginning of the applicable performance period.measures.
•The STIP and LTIP (including as amended in 2020), collectively, utilize a balanced variety of performance measures, including financial and non-financial performance measures.
•The STIP and LTIP (including as amended in 2020) contain reasonable award opportunities that are capped at appropriate maximum levels.
•The Compensation Committee retains discretion under the STIP (including as amended in 2020) with respect to total awards.
Washington REIT•WashREIT adopted a share ownership policy by which each executive is required to maintain a multiple of his or her base salary in common shares.
Washington REIT•WashREIT adopted a “clawback” policy by which the Board has the right to seek to recoup all or any portion of the value of incentive awards.
We believe this combination of factors encourages prudent management of Washington REIT.WashREIT. In particular, by structuring our compensation programs to ensure that a considerable amount of the wealth of our executives is tied to our long-term health, we believe we discourage executives from taking risks that are not in the Company’s long-term interest.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of ChairmanChair Nolan and Messrs. Butcher, Civera and Winns. The Compensation Committee was responsible for making decisions and recommendations to the Board with respect to compensation matters. There are no Compensation Committee interlocks and no Washington REITWashREIT employee serves on the Compensation Committee.
Compensation Committee Report
The Compensation Committee of Washington REITWashREIT has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement for the 20202022 Annual Meeting of Shareholders.
SUBMITTED BY THE COMPENSATION COMMITTEE:
Thomas H. Nolan, Jr., Compensation Committee ChairmanChair
Benjamin S. Butcher, Compensation Committee Member
Edward S. Civera, Compensation Committee Member
Vice Adm. Anthony L. Winns (RET.), Compensation Committee Member
COMPENSATION TABLES
Summary Compensation Table
The Summary Compensation Table has been prepared to comply with the disclosure requirements of the SEC. The Summary Compensation Table sets forth the compensation paid for 2019, 20182021, 2020 and 20172019 to each of our “NEOs” (who are the executive officers set forth in the Summary Compensation Table) and includes as compensation for the indicated year all incentive compensation awards granted in that year (although the awards were made with respect to performance in other years). For an alternative view that we believe more accurately reflects incentive compensation received for a given year, we urge you to refer to the Total Direct Compensation Table on page 74.67.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | (b) | (c) | (d) | (e) | (g) | | (i) | (j) |
Name and Principal Position | Year | Salary ($) | Bonus ($) 2 | Stock Awards ($) 3 | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) 6 | Total ($) |
Paul T. McDermott President and Chief Executive Officer | 2021 | $ | 750,000 | | $ | — | | $ | 2,092,080 | | $ | 1,410,000 | | 4 | $ | 164,176 | | $ | 4,416,260 | |
2020 | 750,000 | | 823,125 | | 2,846,612 | | — | | | 179,160 | | 4,598,897 | |
2019 | 650,000 | | — | | 1,886,378 | | 1,178,125 | | 5 | 160,754 | | 3,875,262 | |
Stephen E. Riffee Executive Vice President and Chief Financial Officer | 2021 | 450,000 | | — | | 875,376 | | 712,463 | | 4 | 90,484 | | 2,128,327 | |
2020 | 450,000 | | 374,625 | | 1,349,340 | | — | | | 96,917 | | 2,270,882 | |
2019 | 425,000 | | — | | 898,532 | | 632,188 | | 5 | 92,421 | | 2,048,146 | |
Taryn D. Fielder 1 Senior Vice President, General Counsel and Corporate Secretary | 2021 | 350,000 | | — | | 481,108 | | 376,250 | | 4 | 50,199 | | 1,257,561 | |
2020 | 350,000 | | 196,875 | | 731,605 | | — | | | 50,549 | | 1,329,029 | |
2019 | 325,000 | | — | | 520,287 | | 337,188 | | 5 | 48,033 | | 1,230,513 | |
1As previously described, Ms. Fielder resigned effective February 25, 2022.
2The NEOs’ non-equity incentive plan compensation for 2020, which is reported in column (d) of this table, was determined by the Compensation Committee at its meeting on February 2, 2021 (subject to management’s affirmation of WashREIT’s final financial performance for the year ended December 31, 2021). These amounts represent the amount of the 2020 Short-Term Incentive Plan awards to each of the NEOs, as further discussed above. The cash award was paid in February of 2021 and the payments were recorded as expenses for 2020.
3Column (e) represents the total grant date fair value of all equity awards computed in accordance with FASB ASC Topic 718. The assumptions used to calculate these amounts are described in note 10 to the consolidated financial statements for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021.
The grant date fair value for the 2021 relative TSR awards under our Current LTIP (based on achievement of performance objectives over a three-year performance period commencing January 1, 2021 and concluding December 31, 2023) is based upon the probable outcome of the applicable performance conditions, as follows: Mr. McDermott: $1,182,525; Mr. Riffee: $478,485; and Ms. Fielder: $261,170. The value of 2021 relative TSR awards at the grant date assuming achievement at the highest level of performance conditions are as follows: Mr. McDermott: $2,475,000; Mr. Riffee: $967,500; and Ms. Fielder: $525,000. The grant date fair value of the time-based LTIP awards is determined using the fair value of the common shares on the grant date.
4The NEOs’ non-equity incentive plan compensation for 2021, which is reported in column (g) of this table, was determined by the Compensation Committee at its meeting on February 1, 2022 (subject to management’s affirmation of WashREIT’s final financial performance for the year ended December 31, 2021). These amounts represent the amount of the 2021 Short-Term Incentive Plan awards to each of the NEOs, as further discussed above. The cash award was paid in February of 2022 and the payments were recorded as expenses for 2021.
5The NEOs’ non-equity incentive plan compensation for 2019, which is reported in column (g) of this table, was determined by the Compensation Committee at its meeting on February 4, 2020. The cash award was paid in February of 2020 and the payments were recorded as expenses for 2019.
|
| | | | | | | | | | | | | | | | | |
(a) | (b) | (c) | (e) | (g) | (i) | (j) |
Name and Principal Position | Year | Salary ($) | Stock Awards (3) ($) | Non-Equity Incentive Plan Compensation (5) ($) | All Other Compensation (6) ($) | Total ($) |
Paul T. McDermott | 2019 | $ | 650,000 |
| $ | 1,886,378 |
| | $ | 1,178,125 |
| $ | 160,754 |
| $ | 3,875,257 |
|
President and Chief | 2018 | 650,000 |
| 1,892,157 |
| | 848,250 |
| 158,590 |
| 3,548,997 |
|
Executive Officer | 2017 | 650,000 |
| 4,857,079 |
| (4) | 1,235,000 |
| 153,705 |
| 6,895,784 |
|
| | | | | | | |
Thomas Q. Bakke (1) | 2019 | 89,059 |
| — |
| | — |
| 19,218 |
| 108,277 |
|
Executive Vice President and | 2018 | 425,000 |
| 911,341 |
| | 455,813 |
| 86,579 |
| 1,878,733 |
|
Chief Operating Officer | 2017 | 425,000 |
| 793,259 |
| | 661,938 |
| 84,418 |
| 1,964,615 |
|
| | | | | | | |
Stephen E. Riffee | 2019 | 425,000 |
| 898,532 |
| | 632,188 |
| 92,421 |
| 2,048,141 |
|
Executive Vice President and | 2018 | 425,000 |
| 911,341 |
| | 455,813 |
| 92,246 |
| 1,884,400 |
|
Chief Financial Officer | 2017 | 425,000 |
| 764,920 |
| | 661,938 |
| 91,868 |
| 1,943,726 |
|
| | | | | | | |
Taryn D. Fielder (2) | 2019 | 325,000 |
| 520,287 |
| | 337,188 |
| 48,033 |
| 1,230,508 |
|
Senior Vice President, General | 2018 | 325,000 |
| 454,855 |
| | 246,188 |
| 47,858 |
| 1,073,901 |
|
Counsel and Corporate Secretary | 2017 | 242,500 |
| 199,927 |
| | 277,238 |
| 28,784 |
| 748,449 |
|
| |
(1) | Mr. Bakke retired effective March 8, 2019. |
| |
(2) | Ms. Fielder became Senior Vice President, General Counsel and Corporate Secretary on March 29, 2017. |
| |
(3) | Column (e) represents the total grant date fair value of all equity awards computed in accordance with FASB ASC Topic 718. |
66
| |
(4) | Mr. McDermott received a one-time equity award on June 1, 2017, which had a grant date fair value of $3,261,000. Per the terms of the award, none of the restricted shares vest until the fifth anniversary of the grant date (i.e., June 1, 2022), subject to Mr. McDermott's continued employment with Washington REIT until such vesting date. |
| |
(5) | The NEOs’ non-equity incentive plan compensation for 2019, 2018 and 2017, which is reported in this table, was determined by the Compensation Committee at its meetings on February 4, 2020 (subject to management’s affirmation of Washington REIT’s final financial performance for the applicable period), February 5, 2019 and February 6, 2018, respectively. For 2019, 2018 and 2017, the cash award was paid in February of 2020, 2019 and 2018, respectively. The payments were recorded as expenses for the year to which they relate. |
| |
(6) | For 2019, the amounts shown in column (i) include the life insurance premiums paid by us for group term life insurance, our match for each individual who made 401(k) contributions, auto allowances, SERP contributions, membership dues and parking. The table below shows the components of “All Other Compensation” for 2019: |
6For 2021, the amounts shown in column (i) include the life insurance premiums paid by us for group term life insurance, our match for each individual who made 401(k) contributions, SERP contributions, membership dues and parking. The table below shows the components of “All Other Compensation” for 2021: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | Life Insurance ($) | | 401(k) Company Match ($) | | Auto Allowances ($) | | SERP Contributions ($) | | Membership Dues ($) | | Parking ($) | | Total ($) |
Mr. McDermott | $ | 17,915 |
| | $ | 9,800 |
| | $ | 14,000 |
| | $ | 110,496 |
| | $ | 1,740 |
| | $ | 6,803 |
| | $ | 160,754 |
|
Mr. Bakke (1) | — |
| | 2,125 |
| | 1,667 |
| | 13,314 |
| | 411 |
| | 1,701 |
| | 19,218 |
|
Mr. Riffee | 4,906 |
| | 9,800 |
| | 6,100 |
| | 64,812 |
| | — |
| | 6,803 |
| | 92,421 |
|
Ms. Fielder | 1,046 |
| | 9,800 |
| | — |
| | 30,384 |
| | — |
| | 6,803 |
| | 48,033 |
|
| |
(1) | Mr. Bakke retired effective March 8, 2019. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | Life Insurance ($) | | 401(k) Company Match ($) | | | | SERP Contributions ($) | | Membership Dues ($) | | Parking ($) | | Total ($) |
Mr. McDermott | $ | 17,915 | | | $ | 10,150 | | | | | $ | 127,500 | | | $ | 1,808 | | | $ | 6,803 | | | $ | 164,176 | |
Mr. Riffee | 4,906 | | | 10,150 | | | | | 68,625 | | | — | | | 6,803 | | | 90,484 | |
Ms. Fielder | 1,046 | | | 9,625 | | | | | 32,725 | | | — | | | 6,803 | | | 50,199 | |
Total Direct Compensation Table
The SEC’s calculation of total compensation, as shown in the 20192021 Summary Compensation Table set forth on page 72,66, includes several items that are driven by accounting and actuarial assumptions, which are not necessarily reflective of compensation actually realized by an NEO in a particular year. To supplement the SEC-required disclosure, we have included the additional table below, which shows the equity incentive compensation awards that were actually received with respect to the applicable year, not the year in which the award was made.
| | | | | | | | | | | | | | | | | | | | | | | |
(a) | (b) | (c) | (d) | (e) | (g) | (i) | (j) |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) 2 | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total Direct Compensation ($) |
Paul T. McDermott President and Chief Executive Officer | 2021 | $ | 750,000 | | $ | — | | $ | 1,999,597 | | $ | 1,410,000 | | $ | 164,176 | | $ | 4,323,773 | |
2020 | 750,000 | | 823,125 | | 1,636,408 | | — | | 179,160 | | 3,388,693 | |
2019 | 650,000 | | — | | 1,619,917 | | 1,178,125 | | 160,754 | | 3,608,796 | |
Stephen E. Riffee Executive Vice President and Chief Financial Officer | 2021 | 450,000 | | — | | 847,323 | | 712,463 | | 90,484 | | 2,100,270 | |
2020 | 450,000 | | 374,625 | | 695,490 | | — | | 96,917 | | 1,617,032 | |
2019 | 425,000 | | — | | 827,437 | | 632,188 | | 92,421 | | 1,977,046 | |
Taryn D. Fielder 1 Senior Vice President, General Counsel and Corporate Secretary | 2021 | 350,000 | | — | | 507,719 | | 376,250 | | 50,199 | | 1,284,168 | |
2020 | 350,000 | | 196,875 | | 408,278 | | — | | 50,549 | | 1,005,702 | |
2019 | 325,000 | | — | | 446,596 | | 337,188 | | 48,033 | | 1,156,817 | |
|
| | | | | | | | | | | | | | | | | |
(a) | (b) | (c) | (e) | (g) | (i) | (j) |
Name and Principal Position | Year | Salary ($) | Stock Awards (3) ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total Direct Compensation ($) |
Paul T. McDermott | 2019 | $ | 650,000 |
| $ | 1,619,917 |
| | $ | 1,178,125 |
| $ | 160,754 |
| $ | 3,608,796 |
|
President and Chief Executive | 2018 | 650,000 |
| 966,758 |
| | 848,250 |
| 158,590 |
| 2,623,598 |
|
Officer | 2017 | 650,000 |
| 4,720,844 |
| (4) | 1,235,000 |
| 153,705 |
| 6,759,545 |
|
| | | | | | | |
Thomas Q. Bakke (1) | 2019 | 89,059 |
| — |
| | — |
| 19,218 |
| 108,277 |
|
Executive Vice President and | 2018 | 425,000 |
| 519,474 |
| | 455,813 |
| 86,579 |
| 1,486,866 |
|
Chief Operating Officer | 2017 | 425,000 |
| 745,107 |
| | 661,938 |
| 84,418 |
| 1,916,463 |
|
| | | | | | | |
Stephen E. Riffee | 2019 | 425,000 |
| 827,437 |
| | 632,188 |
| 92,421 |
| 1,977,046 |
|
Executive Vice President and | 2018 | 425,000 |
| 519,474 |
| | 455,813 |
| 92,246 |
| 1,492,533 |
|
Chief Financial Officer | 2017 | 425,000 |
| 759,672 |
| | 661,938 |
| 91,868 |
| 1,938,478 |
|
| | | | | | | |
Taryn D. Fielder (2) | 2019 | 325,000 |
| 446,596 |
| | 337,188 |
| 48,033 |
| 1,156,817 |
|
Senior Vice President, General | 2018 | 325,000 |
| 280,567 |
| | 246,188 |
| 47,858 |
| 899,613 |
|
Counsel and Corporate Secretary | 2017 | 242,500 |
| 313,312 |
| | 277,238 |
| 28,784 |
| 861,834 |
|
| |
(1) | Mr. Bakke retired effective March 8, 2019. |
(2)1 As previously described, Ms. Fielder became Senior Vice President, General Counselresigned effective February 25, 2022.
2 These amounts differ substantially from the amounts reported as Stock Awards in column (e) in the Summary Compensation Table required under SEC rules and Corporate Secretaryare not a substitute for the amounts reported in the Summary Compensation Table. Total Direct Compensation in this table represents: (1) total compensation, as determined under applicable SEC rules and as set forth in column (j) in the Summary Compensation Table on March 29, 2017.
| |
(3) | These amounts differ substantially from the amounts reported as Stock Awards in column (e) in the Summary Compensation Table required under SEC rules and are not a substitute for the amounts reported in the Summary Compensation Table. Total Direct Compensation in this table represents: (1) total compensation, as determined under applicable SEC rules and as set forth in column (j) in the Summary Compensation Table on page 72, minus (2) the aggregate fair value of equity awards as re |
flectedpage 66, minus (2) the aggregate fair value of relative TSR awards under our Current LTIP and the aggregate fair value of STIP awards for performance periods prior to 2020 as reflected in the Stock Awards column (e) in the Summary Compensation Table, plus (3) incentive compensationrelative TSR awards that were actually received with respect to the applicable2019-2021 performance year.period.
| |
(4) | Mr. McDermott received a one-time equity award on June 1, 2017, which had a grant date fair value of $3,261,000. Per the terms of the award, none of the restricted shares vest until the fifth anniversary of the grant date (i.e., June 1, 2022), subject to Mr. McDermott’s continued employment with Washington REIT until such vesting date. |
Grants of Plan-Based Awards
The following table presents information regarding grants made to the NEOs during 20192021 under Washington REIT’sWashREIT’s STIP and LTIP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (l) |
Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (2) | Estimated Future Payouts Under Equity Incentive Plan Awards (3) | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock and Option Awards ($) |
Threshold ($) | Target ($) | High ($) | Threshold ($) | Target ($) | High ($) |
Paul T. McDermott | 2/10/2021 | | | | $ | 660,000 | | $ | 1,237,500 | | $ | 2,475,000 | | | | $ | 1,182,525 | | 6 |
2/10/2021 | $ | 472,500 | | $ | 937,500 | | $ | 1,410,000 | | | | | | | | |
2/10/2021 | | | | | | | 31,596 | | 4 | $ | 740,926 | | |
2/10/2021 | | | | | | | 38,787 | | 5 | $ | 909,555 | | |
Stephen E. Riffee | 2/10/2021 | | | | $ | 283,500 | | $ | 540,000 | | $ | 967,500 | | | | $ | 478,485 | | 6 |
2/10/2021 | $ | 216,000 | | $ | 418,500 | | $ | 720,000 | | | | | | | | |
2/10/2021 | | | | | | | 12,995 | | 4 | $ | 304,733 | | |
2/10/2021 | | | | | | | 16,925 | | 5 | $ | 396,891 | | |
Taryn D. Fielder 1 | 2/10/2021 | | | | $ | 150,500 | | $ | 301,000 | | $ | 525,000 | | | | $ | 261,170 | | 6 |
2/10/2021 | $ | 122,500 | | $ | 227,500 | | $ | 402,500 | | | | | | | | |
2/10/2021 | | | | | | | 8,154 | | 4 | $ | 191,211 | | |
2/10/2021 | | | | | | | 9,379 | | 5 | $ | 219,938 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (l) |
Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (2) | 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 ($) |
Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) |
Paul T. McDermott | 1/1/2019 | | | | $ | 520,000 |
| $ | 975,000 |
| $ | 1,755,000 |
| | | $ | 919,620 |
| (4) |
| 2/14/2019 | | | | | | | 37,269 |
| (3) | 966,758 |
| |
| 2/14/2019 | 377,000 |
| 734,500 |
| 1,267,000 |
| | | | | | | |
| | | | | | | | | | | |
Thomas Q. Bakke (1) | | | | | | | | | | | |
| | | | | | | | | | | |
Stephen E. Riffee | 1/1/2019 | | | | 212,500 |
| 403,750 |
| 722,500 |
| | | 379,058 |
| (4) |
| 2/14/2019 | | | | | | | 20,026 |
| (3) | 519,474 |
| |
| 2/14/2019 | 204,000 |
| 395,250 |
| 680,000 |
| | | | | | | |
| | | | | | | | | | | |
Taryn D. Fielder | 1/1/2019 | | | | 130,000 |
| 260,000 |
| 455,000 |
| | | 239,720 |
| (4) |
| 2/14/2019 | | | | | | | 10,816 |
| (3) | 280,567 |
| |
| 2/14/2019 | 113,750 |
| 211,250 |
| 373,750 |
| | | | | | | |
| |
(1) | Mr. Bakke retired effective March 8, 2019 and received no grants during 2019. |
| |
(2) | The amounts shown in columns (c), (d) and (e) reflect the threshold, target and maximum payment levels for 2019 under the 50% cash STIP component which were established on March 18, 2019 and amended on each of March 22, 2019 and October 16, 2019. The actual cash bonuses received by each of the named executive officers for performance in 2019, paid in 2020, are set out in column (g) of the Summary Compensation Table. |
1 As previously described, Ms. Fielder resigned effective February 25, 2022.
2 The amounts shown in columns (c), (d) and (e) reflect the threshold, target and high payment levels for 2021 under the STIP. The actual cash bonuses received by each of the named executive officers for performance in 2021, paid in 2022, are set out in column (g) of the Summary Compensation Table.
753 Amounts represent 2021 awards under our Current LTIP that are based on achievement of performance objectives over a three-year performance period (commencing January 1, 2021 and concluding December 31, 2023). For performance below threshold levels, no incentives will be paid pursuant to the program, and the maximum award will only be paid if actual performance meets or exceeds the high level of performance. The award will be paid out in a number of unrestricted shares, with the total number of shares issued determined by dividing the dollar amount payable by the closing price per share on the first trading day following the end of the performance period.
4 Amounts represent relative TSR restricted share awards for the 2019 to 2021 performance period pursuant to the Current LTIP, 75% of which vested on December 31, 2021, with the remaining 25% vesting on December 31, 2022.
5 Amounts represent time-based restricted share awards pursuant to the Current LTIP that vest over three years, with one-third vesting on each of December 15, 2021, 2022 and 2023.
| |
(3) | Amounts represent performance-based restricted share awards pursuant to the STIP for the performance period commencing January 1, 2018 and concluding December 31, 2018 that vest over three years, with one-third vesting on December 31, 2019, 2020 and 2021. |
| |
(4) | Amounts represent LTIP awards based on achievement of performance objectives over a three-year performance period (commencing January 1, 2019 and concluding December 31, 2021). For performance below threshold levels, no incentives will be paid pursuant to the program, and the maximum award will only be paid if actual performance meets or exceeds the high level of performance. The award will be paid out in a number of unrestricted shares and restricted shares that vest over a one-year period commencing on January 1 following the end of the performance period, with the total number of restricted and unrestricted shares issued determined by dividing the dollar amount payable by the closing price per share on January 1 or if such January 1 is not a trading day, the first trading day following such January 1. |
6 The amounts reported in the Grant Date Fair Value of Stock and Option Awards column show the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718, using the assumptions discussed in note 9 to the consolidated financial statements for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021. The grant date fair value of the 2021 awards under our Current LTIP are based upon the probable outcome of the applicable performance conditions.
For unvested and vested restricted shares, an amount equal to the dividends granted on the shares is paid at the same time dividends on common shares are paid.
Narrative to Summary Compensation and Grants of Plan-Based Awards Table
The following discussion should be read in conjunction with (i) the “2021 Summary Compensation Table” and the “2021 Grants of Plan-Based Awards Table,” as well as the footnotes to such tables, and (ii) the disclosure under the caption “Compensation Discussion and Analysis” above.
CEO Employment Letter
On August 20, 2013, WashREIT announced that it had selected Mr. McDermott to be its new President and Chief Executive Officer and had entered into an employment letter specifying the terms of his employment. Under the employment letter, effective January 1, 2014, Mr. McDermott became eligible to participate in the STIP and LTIP at the Chief Executive Officer level, in accordance with the terms of the STIP and the LTIP, as they may be amended by the Board for all participating employees generally from time to time.
The employment letter provided that Mr. McDermott is entitled to an automobile allowance of $14,000 per year. The employment letter also entitles Mr. McDermott to a 401(k) match and participation in our supplemental executive retirement plan (“SERP”). The employment letter requires Mr. McDermott to protect the confidentiality of WashREIT confidential information and comply with WashREIT’s stock ownership guidelines described below in this Proxy Statement. It further provided that he would enter into the form of indemnification agreement entered into by and between WashREIT and its other officers and Board members.
The employment letter provides that either Mr. McDermott or WashREIT may terminate the employment relationship at any time for any lawful reason, with or without Cause, Good Reason (as defined in the employment letter) or notice. If Mr. McDermott’s employment is terminated without Cause or he terminates for Good Reason, he would receive the following severance benefits, payable in installments according to WashREIT’s payroll cycle, and pro-rata portions of any STIP and LTIP values as determined by the applicable plans, provided that he signs WashREIT’s standard separation agreement and general release. If Mr. McDermott were to be terminated without Cause or for Good Reason (each as defined in the employment letter), he would receive 12 months of base salary.
CFO Employment Letter
On January 18, 2015, WashREIT entered into an employment letter with Mr. Riffee specifying the terms of his employment. Pursuant to Mr. Riffee’s employment letter, Mr. Riffee participates in WashREIT’s executive compensation program, including the STIP and LTIP, at the Executive Vice President level.
General Counsel Employment Letter
On April 5, 2017, WashREIT entered into an employment letter with Ms. Fielder specifying the terms of her employment. Pursuant to Ms. Fielder’s employment letter, Ms. Fielder was awarded $75,000 in RSUs, granted under the 2016 Omnibus Incentive Plan, on her first date of employment, which was March 29, 2017. These 2,431 RSUs were subject to vesting in five equal installments over a five-year period, on the first through fifth anniversaries of such date. The 486 of these shares that were scheduled to vest on March 29, 2022 vested in February 2022 pursuant to the Separation Agreement by and between Ms. Fielder and the Company.
Equity Awards
The equity awards granted to our NEOs during 2021 that appear in the tables above were granted pursuant to our Current LTIP, which is described further in the Compensation Discussion and Analysis section under the caption “Long-Term Incentive Compensation.”Additionally, pursuant to the short-term incentive plan for performance periods prior to 2020, 50% of any STIP award was awarded in restricted shares which were subject to a ratable vesting schedule that runs for three years from the January 1 following completion of the one-year performance period. The awards under the STIP for performance periods prior to 2020 were accounted for and granted in the year following completion of the performance period
Outstanding Equity Awards at Fiscal Year-End
The following table presents information regarding the outstanding equity awards held by each of the NEOs as of December 31, 2019,2021, including the vesting dates for the portion of these awards that had not vested as of that date.
| | | | | | | | | | | | | | |
(a) | (g) | (h) | (i) | (j) |
| | Stock Awards | |
Name | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) 1 | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) 2 | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) 3 |
Paul T. McDermott 4 | 159,970 | | $ | 4,135,225 | | 71,809 | | $ | 1,856,250 | |
Stephen E. Riffee 5 | 27,267 | | 704,852 | | 31,335 | | 810,000 | |
Taryn D. Fielder 6 | 15,839 | | 409,438 | | 17,466 | | 451,500 | |
1 Amounts reported are based on the closing price of WashREIT’s common shares on the NYSE as of December 31, 2021 ($25.85), multiplied by the number of such unvested shares reported in the table.
2 Represents the awards that the respective NEO would vest in based on the fair value of unvested relative TSR awards as of December 31, 2021. These awards will be paid out in a number of shares, with the total number of shares issued determined by dividing the dollar amount payable by the closing price per share on January 1 or if such January 1 is not a trading day, the first trading day following such January 1. For purposes of this column, the number of unearned shares that have not vested was determined by dividing the payout value by the closing price of WashREIT’s common shares on the NYSE as of December 31, 2021 ($25.85).
3 Represents the fair value of unissued relative TSR awards as of December 31, 2021 that the respective NEO would vest in based on achieving the target level of performance.
4 Mr. McDermott’s share awards listed in column (g) vest according to the following schedule: 100,000 are scheduled to vest on June 1, 2022; 22,405 shares are scheduled to vest on December 15, 2022; 24,636 are scheduled to vest on December 31, 2022; and 12,929 are scheduled to vest on December 15, 2023. Mr. McDermott received a one-time equity award on June 1, 2017, which had a market value of $3,112,000. Per the terms of the award, none of the restricted shares vest until the fifth anniversary of the grant date (i.e., June 1, 2022), subject to Mr. McDermott's continued employment with WashREIT until such vesting date.
5 Mr. Riffee’s share awards listed in column (g) are scheduled to vest according to the following schedule: 9,777 are scheduled to vest on December 15, 2022; 11,849 shares vested on December 31, 2022; and 5,641 shares scheduled to vest on February 2, 2023.
6 Ms. Fielder’s share awards listed in column (g) were scheduled to vest according to the following schedule: 486 shares were scheduled to vest on March 29, 2022; 5,423 shares were scheduled to vest on December 15, 2022; 6,804 shares were scheduled to vest on December 31, 2022 and 3,126 shares were scheduled to vest on December 15, 2023. As previously described, Ms. Fielder resigned effective February 25, 2022 and her outstanding equity vested immediately in accordance with her Separation Agreement.
|
| | | | | | | | | | |
(a) | (g) | (h) | | (i) | (j) |
| | Stock Awards | |
Name | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
Paul T. McDermott (1) | 141,133 |
| $ | 4,118,261 |
| (5) | — |
| — |
|
| | | | | |
Thomas Q. Bakke (2) | — |
| — |
| | — |
| — |
|
| | | | | |
Stephen E. Riffee (3) | 21,751 |
| 634,694 |
| | — |
| — |
|
| | | | | |
Taryn D. Fielder (4) | 12,350 |
| 360,373 |
| | — |
| — |
|
| |
(1) | Mr. McDermott’s share awards listed in column (g) vest according to the following schedule: 28,710 shares are scheduled to vest on December 31, 2020; 12,423 are scheduled to vest on December 31, 2021; and 100,000 shares are scheduled to vest on June 1, 2022. |
| |
(2) | Mr. Bakke retired effective March 8, 2019. Under his Separation Agreement, the Company fully accelerated the vesting of all of Mr. Bakke’s equity-based awards that were outstanding as of March 8, 2019. |
| |
(3) | Mr. Riffee’s share awards listed in column (g) are scheduled to vest according to the following schedule: 15,076 shares vested on December 31, 2020; and 6,675 shares scheduled to vest on December 31, 2021. |
| |
(4) | Ms. Fielder’s share awards listed in column (g) vest according to the following schedule: 486 shares vested on March 29, 2020; 7,287 shares scheduled to vest on December 31, 2020; 486 shares are scheduled to vest on March 29, 2021; 3,605 shares scheduled to vest on December 31, 2021; and 486 shares are scheduled to vest on March 29, 2022. |
| |
(5) | Mr. McDermott received a one-time equity award on June 1, 2017, which had a market value of $3,112,000. Per the terms of the award, none of the restricted shares vest until the fifth anniversary of the grant date (i.e., June 1, 2022), subject to Mr. McDermott's continued employment with Washington REIT until such vesting date. |
20192021 Option Exercises and Stock Vested
The following table sets forth the value realized by our NEOs in 20192021 upon the vesting of common share awards in 2019.2021. None of our NEOs had outstanding options or exercises of options in 2019.2021.
| | | | | | | | |
| (d) | (e) |
| Stock Awards |
Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) 2 |
Paul T. McDermott | 89,574 | | $ | 2,269,381 | |
Stephen E. Riffee | 40,728 | | 1,033,709 | |
Taryn D. Fielder 1 | 24,222 | | 612,527 | |
|
| | | | | |
| (d) | (e) |
| Stock Awards |
Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) (2) |
Paul T. McDermott | 43,807 |
| $ | 1,298,381 |
|
Thomas Q. Bakke (1) | 40,161 |
| 1,094,387 |
|
Stephen E. Riffee | 22,395 |
| 661,731 |
|
Taryn D. Fielder | 8,999 |
| 266,921 |
|
1 As previously described, Ms. Fielder resigned effective February 25, 2022.(1) Mr. Bakke retired effective March 8, 2019.
(2) Value received on vesting is2 Amounts reported are based on the closing price of Washington REITWashREIT’s common shares on the applicableNYSE as of date that the shares vested, multiplied by the number of such unvested shares vesting on such date.
Supplemental Executive Retirement Plan
The following table presents information regarding the contributions to and earnings on the NEOs’ SERP balances during 20192021 as of December 31, 2019.2021.
| | | | | | | | | | | | | | | | | |
(a) | (b) | (c) | (d) | (e) | (f) |
Name | Executive Contributions in Last FY ($) | Registrant Contribution in Last FY ($) 2 | Aggregate Earnings in Last FY ($) 3 | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) |
Paul T. McDermott | $ | — | | $ | 127,500 | | $ | 184,937 | | $ | — | | $ | 1,536,201 | |
Stephen E. Riffee | — | | 68,625 | | 143,491 | | — | | 818,826 | |
Taryn D. Fielder 1 | — | | 32,725 | | 19,006 | | — | | 210,615 | |
|
| | | | | | | | | | | | | | | |
(a) | (b) | (c) | (d) | (e) | (f) |
Name | Executive Contributions in Last FY ($) | Registrant Contribution in Last FY ($) (2) | Aggregate Earnings in Last FY ($) (3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) |
Paul T. McDermott | $ | — |
| $ | 110,496 |
| $ | 161,923 |
| $ | — |
| $ | 854,259 |
|
Thomas Q. Bakke (1) | — |
| 13,314 |
| 49,201 |
| — |
| 307,985 |
|
Stephen E. Riffee | — |
| 64,812 |
| 85,051 |
| — |
| 420,647 |
|
Taryn D. Fielder | — |
| 30,384 |
| 13,984 |
| — |
| 95,061 |
|
| |
(1) | Mr. Bakke retired effective March 8, 2019. |
1 As previously described, Ms. Fielder resigned effective February 25, 2022.
2 The amounts reflected in this column are reported as compensation for the last completed fiscal year in the Summary Compensation Table.
783 The amounts reflected in this column are not included in the Summary Compensation Table because they do not constitute “above-market” or “preferential” earnings, as those terms are defined in SEC Regulation S-K 402(c)(2)(viii)(B).
| |
(2) | The amounts reflected in this column are reported as compensation for the last completed fiscal year in the Summary Compensation Table. |
| |
(3) | The amounts reflected in this column are not included in the Summary Compensation Table because they do not constitute “above-market” or “preferential” earnings, as those terms are defined in SEC Regulation S-K 402(c)(2)(viii)(B). |
Potential Payments upon Termination or Change in Control
Washington REITChange in Control Termination Agreements
WashREIT has entered into change in control agreements with the NEOs that entitle them to continuation of compensation and other benefits from Washington REITWashREIT if Washington REITin the event of termination due to a “change in control” (as defined in these agreements) of WashREIT. The basic rationale for these change in control protections is subject to diminish the potential distractions due to personal uncertainties and risks that inevitably arise when a change in control is threatened or pending.
The termination benefits payable in connection with a change in control require a “double trigger,” which means that (1) there is a “change in control” (as that term is defined in the applicable agreement) and (2) after the change in control, the covered NEO’s employment with Washington REITis “involuntarily terminated” by WashREIT or its successor is terminated by Washington REIT or its successor, other thannot for “cause,” or“cause” (as both terms are defined in the applicable agreement), but including a termination by the NEO for “good reason” and such termination occursexecutive because his duties, responsibilities or compensation are materially diminished, within 24 orto 36 months of the change in control (as such period is specified in the covered NEO’s agreement). In addition, if one of the foregoing terminations of employment occurs in the 90-day period before the change in control, the termination will be presumed to be due to the change in control unless WashREIT can demonstrate to the contrary. A double trigger was selected to enhance the likelihood that an executive would remain with WashREIT after a change in control because the executive would not receive the continuation of payments and benefits if he or she voluntarily resigned after the change in control. Thus, the executive is protected from actual or constructive dismissal after a change in control and any new controlling party or group is better able to retain the services of a key executive.
The formula to calculate the change in control benefit is similar for each of the NEOs, with the variable being whether the benefit will be paid for 24 or 36 months. The formula is as follows:
1. Continuation of base salary at the rate in effect as of the termination date for a period of 24 or 36 months from the date of termination.
| | | | | |
1.Executive Position | Continuation of annual base salary at the rate in effect as of the termination date for a period of 24 or 36 months from the date of termination. |
| Period |
2.Chief Executive Officer | Payment of an annual bonus for each calendar year or partial calendar in which the NEO receives salary continuation as described above, in an amount equal to the average annual STIP compensation received during the three years prior to the involuntary termination. |
| 36 months |
3.Executive Vice Presidents | Payment of the full cost of COBRA continuation coverage for the period of time in which salary continuation pursuant to the change in control agreement is paid, up to a maximum of 1824 months or until the NEO obtains other comparable coverage, whichever is sooner. |
| |
4.Senior Vice Presidents | Immediate vesting in all unvested common share grants and RSUs granted to the NEO under Washington REIT’s LTIP and immediate vesting in the SERP and deferred compensation plans.24 months |
2. Payment of an annual bonus for each calendar year or partial calendar in which the NEO receives salary continuation as described above, in an amount equal to the average annual STIP compensation received during the three years prior to the involuntary termination.
3. Payment of the full cost of COBRA continuation coverage for the period of time in which salary continuation pursuant to the change in control agreement is paid, up to a maximum of 18 months or until the NEO obtains other comparable coverage, whichever is sooner.
4. Immediate vesting in all unvested common share grants, RSUs, performance share units and dividend equivalent units granted to the NEO under WashREIT’s 2007 Omnibus Long-Term Incentive Plan or the 2016 Omnibus Incentive Plan and immediate vesting in the deferred compensation plans.
Awards under STIP
If a Change in Control (as defined in the STIP) occurs during the performance period while the executive is employed by WashREIT, the performance goals under the STIP will be prorated based on number of days in the
performance period through the date of the Change in Control relative to the full performance period, and the executive will receive an award based on the actual levels of achievement of the prorated performance goals as of the date of the Change in Control. Generally, an executive is required to be employed on the last day of the performance period to be entitled to receive a STIP award. However, if during the performance period, the executive’s employment is terminated by WashREIT without Cause, or the executive resigns with Good Reason, Retires, dies or becomes subject to a Disability (each as defined in the STIP) while employed by WashREIT, the executive will receive an award under the STIP based on the actual levels of achievement of the performance goals for the entire performance period, but the award will be prorated based on the period of employment during the performance period.
Awards under Prior LTIP
If, during the one-year vesting period for the restricted shares under the Prior LTIP, the executive’s employment is terminated by Washington REIT without Cause, or the executive resigns for Good Reason, Retires, dies or becomes subject to a Disability while employed by Washington REIT, or a Change in Control (each as defined in the Prior LTIP) occurs, the restricted shares awarded under the Prior LTIP will immediately vest.
Awards under Current LTIP
If a Change in Control (as defined in the Current LTIP) occurs during a performance period while the participant is employed, the Current LTIP provides that all time-based awards which are unvested will become vested, and the participant will receive the shareholder return measure-based awards calculated based on actual levels of achievement of the applicable shareholder return measures as of the date of the Change in Control, prorated based on the period of employment during the performance period, and the strategic measure-based awards will be calculated at target. If during the performance period, the executive’s employment is terminated by WashREIT without Cause, or the executive resigns with Good Reason, Retires, dies or becomes subject to a Disability (each as defined in the Current LTIP), all time-based awards which are unvested will become vested, the executive will receive any shareholder return measure-based awards and strategic measure-based awards based on actual levels of achievement of the applicable measures as of the date of such event (for the shareholder return measures) and as of the end of the performance period (for strategic measures), but in each case the award will be prorated based on the period of employment during the performance period.
Severance Plan
We maintain an Executive Officer Severance Pay Plan. For further information on payments pursuant to the Executive Officer Severance Pay Plan, see “Other Executive Compensation Components - Severance Plan” on page 56.
The following table lists the estimated amounts to which each of the NEOs would have become entitled to had their employment with Washington REITWashREIT terminated on December 31, 2019,2021, under the circumstances described above.
| | | | | | | | | | | | | | | | | | | | |
Name | Benefit | Without Cause / For Good Reason ($) | For Cause / Without Good Reason ($) | Death or Disability ($) | Change in Control and Termination ($) 2 | Change in Control ($) |
Paul T. McDermott | Cash Severance | $ | 750,000 | | $ | — | | $ | — | | $ | 6,839,376 | | $ | — | |
Unvested Equity Awards 1 | 5,964,388 | | — | | 5,964,388 | | 5,964,388 | | 5,964,388 | |
Unvested SERP | 1,536,201 | | — | | 1,536,201 | | 1,536,201 | | — | |
| | | | | |
Total Value of Benefits | $ | 8,250,589 | | $ | — | | $ | 7,500,589 | | $ | 14,339,965 | | $ | 5,964,388 | |
Stephen E. Riffee | Cash Severance | $ | 190,385 | | $ | — | | $ | — | | $ | 2,467,642 | | $ | — | |
Unvested Equity Awards | 1,487,808 | | — | | 1,487,808 | | 1,487,808 | | 1,487,808 | |
Unvested SERP | 818,826 | | — | | 818,826 | | 818,826 | | — | |
| | | | | |
Total Value of Benefits | $ | 2,497,019 | | $ | — | | $ | 2,306,634 | | $ | 4,774,276 | | $ | 1,487,808 | |
Taryn D. Fielder | Cash Severance | $ | 121,154 | | $ | — | | $ | — | | $ | 1,531,668 | | $ | — | |
Unvested Equity Awards | 840,242 | | — | | 840,242 | | 840,242 | | 840,242 | |
Unvested SERP | 210,615 | | — | | 210,615 | | 210,615 | | — | |
| | | | | |
Total Value of Benefits | $ | 1,172,011 | | $ | — | | $ | 1,050,857 | | $ | 2,582,525 | | $ | 840,242 | |
|
| | | | | | | | | | | | | | |
Name | Benefit | Without Cause / For Good Reason ($) | For Cause / Without Good Reason ($) | Death or Disability ($) | Upon Change in Control ($) (4) |
Paul T. McDermott | Cash Severance | $ | 650,000 |
| $ | — |
| $ | — |
| $ | 8,472,750 |
| |
| Unvested Equity Awards (1) | 6,593,184 |
| — |
| 6,593,184 |
| 6,593,184 |
| |
| Unvested SERP | 854,259 |
| — |
| 854,259 |
| 854,259 |
| |
| Total Value of Benefits | $ | 8,097,443 |
| $ | — |
| $ | 7,447,443 |
| $ | 15,920,193 |
| |
| | | | | | |
Thomas Q. Bakke (2) | | | | | | |
| | | | | | |
Stephen E. Riffee | Cash Severance | $ | 147,115 |
| $ | — |
| $ | — |
| $ | 3,183,252 |
| |
| Unvested Equity Awards | 1,653,728 |
| — |
| 1,653,728 |
| 1,653,728 |
| |
| Unvested SERP | 420,647 |
| — |
| 420,647 |
| 420,647 |
| |
| Total Value of Benefits | $ | 2,221,490 |
| $ | — |
| $ | 2,074,375 |
| $ | 5,257,627 |
| |
| | | | | | |
Taryn D. Fielder | Cash Severance | $ | 112,500 |
| $ | — |
| $ | — |
| $ | 1,913,168 |
| (3) |
| Unvested Equity Awards | 1,002,494 |
| — |
| 1,002,494 |
| 1,002,494 |
| |
| Unvested SERP | 95,061 |
| — |
| 95,061 |
| 95,061 |
| |
| Total Value of Benefits | $ | 1,210,055 |
| $ | — |
| $ | 1,097,555 |
| $ | 3,010,723 |
| |
| |
(1) | Mr. McDermott received a one-time equity award on June 1, 2017, which had a grant date fair value of $3,261,000, which would vest immediately upon a change in control. Per the terms of the award, none of the restricted shares vest until the fifth anniversary of the grant date (i.e., June 1, 2022), subject to Mr. McDermott’s continued employment with Washington REIT1 Mr. McDermott received a one-time equity award on June 1, 2017, which had a grant date fair value of $3,261,000, which would vest immediately upon a change in control. Per the terms of the award, none of the restricted shares vest until the fifth anniversary of the grant date (i.e., June 1, 2022), subject to Mr. McDermott’s continued employment with WashREIT until such vesting date. |
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(2) | Mr. Bakke retired effective March 8, 2019. Pursuant to his Separation Agreement, Mr. Bakke waived all rights to future compensatory payments from the Company, including those contingent upon a change in control. |
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(3) | Ms. Fielder became Senior Vice President, General Counsel and Corporate Secretary on March 29, 2017. As such, her 2017 annual bonus was prorated. Her average 3-year bonus has been calculated based on the annualized 2017 bonus that would have been awarded had Ms. Fielder been employed by Washington REIT for all of 2017. |
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(4) | The cost of COBRA continuation benefits has not been included in the total change in control benefit amount, as the value would not be material. |
2 The cost of COBRA continuation benefits has not been included in the total change in control and termination benefit amount, as the value would not be material.
80On February 25, 2022, Taryn D. Fielder and the Company agreed to a mutual separation, pursuant to which Ms. Fielder tendered her resignation. Such resignation was effective on February 25, 2022. On March 5, 2022, Ms. Fielder and the Company entered into the Separation Agreement, which provided for payments and benefits described under “Separation Agreement” at page 58.
CEO Pay Ratio
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, presented below is the ratio of annual total compensation of our CEO to the annual total compensation of our median employee (excluding our CEO). The ratio presented below is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Exchange Act.
To identify the “median employee” from our employee population, we used W-2 Medicare compensation for U.S. employees (annualizing such compensation for employees who had worked less than the 12 month12-month period) and excluding our CEO from the calculation, which is the same methodology we utilized last year. We have no employees outside of the United States. We did not use any statistical sampling techniques and did not make any cost of livingcost-of-living adjustments in identifying our median employee. We did not include independent contractors thatwho we
do not consider to be employees. Using this methodology, we determined that we had 12852 employees as of December 31, 2019.2021. We identified our median employee from this employee population.
The 20192021 annual total compensation as determined under Item 402 of Regulation S-K for our CEO was $3,875,257.$4,416,260. The 20192021 annual total compensation as determined under Item 402 of Regulation S-K for our median employee was $102,799.$167,980. The ratio of our CEO’s annual total compensation to our median employee’s total compensation for fiscal year 20192021 is 3826 to 1.
The SEC’s rules for calculating the required pay ratio permit companies to use reasonable estimates and assumptions in their methodologies, and companies have different employee populations and compensation practices. As a result, pay ratios reported by other companies may not be comparable to the pay ratio reported above.
Equity Compensation Plan Information
Equity Compensation Plan Information
|
| | | | | | | | | | | | | | | | |
| (a) | | (b) | | (c) |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights
| | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| (a) | | (b) | | (c) |
Equity compensation plans approved by security holders | — |
| | $ | — |
| | 1,549,9061,036,284 |
|
Equity compensation plans not approved by security holders | — |
| | $ | — |
| | — |
|
Total | — |
| | $ | — |
| | 1,549,9061,036,284 |
|
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Description of Proposal
The firm of Ernst & Young LLP served as Washington REIT’sWashREIT’s independent registered public accounting firm for 2019.2021. The Audit Committee has appointed Ernst & Young LLP as Washington REIT’sWashREIT’s independent registered public accounting firm for the fiscal year ending December 31, 2020.2022. The Board recommends that the shareholders ratify this appointment.
If this appointment is not ratified by our shareholders, the Audit Committee may re-consider the appointment. Even if the selection is ratified, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the year if it determines that such change would be in the best interests of Washington REIT.WashREIT.
Representatives of Ernst & Young LLP are expected to attend the virtual Annual Meeting and will have the opportunity to make a statement if they desire to do so. They are also expected to be available to respond to appropriate questions.
Voting Matters
Under our bylaws, ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 20202022 requires the affirmative vote of a majority of the votes cast. A majority of votes cast means that the number of votes “FOR” a proposal must exceed the number of votes “AGAINST” that proposal. Abstentions will not be counted as votes cast and will have no effect on the result of this vote.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS WASHINGTON REIT’SWASHREIT’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.2022.
ACCOUNTING/AUDIT COMMITTEE MATTERS
Principal Accounting Firm Fees
The following table sets forth the aggregate fees billed to Washington REITWashREIT for the years ended December 31, 20192021 and 20182020 by Washington REIT’sWashREIT’s independent registered public accounting firm, Ernst & Young LLP. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the public accountant’s independence.
| | | | | | | | |
| 2021 | 2020 |
Audit Fees (a) | $ | 1,683,511 | | $ | 1,510,250 | |
Audit-Related Fees (b) | — | | — | |
Tax Fees (c) | 191,643 | | 165,710 | |
All Other Fees | 30,000 | | 9,000 | |
Total Fees | $ | 1,905,154 | | $ | 1,684,960 | |
|
| | | | | | |
| 2019 | 2018 |
Audit Fees (a) | $ | 1,735,650 |
| $ | 1,495,550 |
|
Audit-Related Fees (b) | 106,000 |
| — |
|
Tax Fees (c) | 215,904 |
| 149,357 |
|
All Other Fees | — |
| — |
|
Total Fees | $ | 2,057,554 |
| $ | 1,644,907 |
|
(a) Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered. Audit fees include the annual audit fee and fees for reviews of financial statements, performance of comfort procedures and issuance of comfort and bring down letters. | |
(a) | Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered. Audit fees include the annual audit fee and fees for reviews of financial statements, performance of comfort procedures and issuance of comfort and bring down letters. |
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(b) | Audit related fees consist of the annual audit fees of certain subsidiaries, notwithstanding when the fees were billed or when the services were rendered. |
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(c) | Includes fees and expenses for tax services, including tax compliance, tax advice and tax planning, rendered from January through the end of the fiscal year, notwithstanding when the fees and expenses were billed. |
(b) Audit related fees consist of the annual audit fees of certain subsidiaries, notwithstanding when the fees were billed or when the services were rendered.
(c) Includes fees and expenses for tax services, including tax compliance, tax advice and tax planning, rendered from January through the end of the fiscal year, notwithstanding when the fees and expenses were billed.
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax and other services performed by the independent auditor. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent auditor is engaged to perform it. The Audit Committee has delegated to the ChairmanChair of the Audit Committee authority to approve permitted services provided that the ChairmanChair reports any decisions to the Committee at its next scheduled meeting. All services performed by Ernst & Young LLP for the fiscal year ended December 31, 20192021 were pre-approved by the Audit Committee or the ChairmanChair of the Audit Committee.
Audit Committee Report
The Board maintains an Audit Committee, currently comprised of four of Washington REIT’sWashREIT’s independent trustees. The Board and the Audit Committee believe that the Audit Committee’s current member composition satisfies Section 303A of the NYSE’s Listed Company Manual. The Audit Committee oversees Washington REIT’sWashREIT’s financial process on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The independent registered public accounting firm Ernst & Young LLP is responsible for expressing an opinion on the conformity of those financial statements with generally accepted accounting principles and the effectiveness of Washington REIT’sWashREIT’s internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board. The members of the Audit Committee of the Board of Washington REITWashREIT submit this report in connection with the committee’s review of the financial reports for the fiscal year ended December 31, 20192021 as follows:
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1. | In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2019, with management, including a discussion of the quality, and not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements and management’s assessment of the effectiveness of Washington REIT’s internal controls over financial reporting. |
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2. | The Audit Committee discussed with Washington REIT’s independent registered public accounting firm the overall scope and plans for their audit. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of their examination, their evaluation of Washington REIT’s internal controls and the overall quality of Washington REIT’s financial reporting. |
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3. | 1.In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2021, with management, including a discussion of the quality, and not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements and management’s assessment of the effectiveness of WashREIT’s internal controls over financial reporting. 2.The Audit Committee discussed with WashREIT’s independent registered public accounting firm the overall scope and plans for their audit. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of their examination, their evaluation of WashREIT’s internal controls and the overall quality of WashREIT’s financial reporting. 3.The Audit Committee reviewed with the independent registered public accounting firm their judgments as to the quality, and not just the acceptability, of WashREIT’s accounting principles and such other matters as are required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board Auditing and the Securities and Exchange Commission. In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm their judgments as to the quality, and not just the acceptability, of Washington REIT’s accounting principles and such other matters as are matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board Auditing and the Securities and Exchange Commission. In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public |
accounting firm’s communications with the Audit Committee concerning independence and has discussed with the independent registered public accounting firm their independence from management and Washington REIT.WashREIT.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in Washington REIT’sWashREIT’s Annual Report on Form 10-K for the fiscal year ended December 31, 20192021 and for filing with the SEC.
SUBMITTED BY THE AUDIT COMMITTEE
Ellen M. Goitia, Audit Committee ChairmanChair
William G. Byrnes, Audit Committee Member
Edward S. Civera, Audit Committee Member
Thomas H. Nolan, Jr., Audit Committee Member
OTHER MATTERS
Solicitation of Proxies
Solicitation of proxies may be made by mail, personal interview, telephone or other means by officers, trustees and employees of Washington REITWashREIT for which they will receive no compensation in addition to their normal compensation. Washington REITWashREIT may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of common shares that those companies or persons hold of record. Washington REITWashREIT will reimburse these forwarding expenses. The cost of the solicitation of proxies will be paid by Washington REIT.WashREIT.
Washington REITWashREIT has also hired Morrow Sodali LLC to assist in distributing and soliciting proxies and will pay approximately $8,000$8,500 plus expenses for these services.
Shareholder Proposals for Our 20212023 Annual Meeting of Shareholders
The Board will provide for presentation of proposals by shareholders at the 20212023 Annual Meeting of Shareholders, provided that these proposals are submitted by eligible shareholders who have complied with the relevant regulations of the SEC and our bylaws regarding shareholder proposals.
In addition to satisfying the requirements under our bylaws, to comply with the universal proxy rules under the Exchange Act, shareholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than March 27, 2023.
Any shareholder proposal pursuant to Rule 14a-8 under the Exchange Act intended to be presented at the 20212023 Annual Meeting must be received at our executive offices on or before December 10, 202016, 2022 to be considered for inclusion in our 20212023 proxy statement materials.
Shareholders wishing to submit proposals or trustee nominations to be presented at the 20212023 Annual Meeting that are not to be included in our proxy materials must deliver notice to us at our executive offices not less than 120 and no more than 150 days before the first anniversary of the date of Proxy Statement for the preceding year’s Annual Meeting (i.e., between November 10, 202016, 2022 and 5:00 p.m. Eastern Time, on December 10, 2020)16, 2022), with adjustments if the date for the upcoming annual meeting of stockholdersshareholders is advanced or delayed by more than 30 days from the anniversary date of the preceding year’s annual meeting. Shareholders are advised to review our bylaws, which contain additional requirements with respect to advance notice of shareholder proposals and trustee nominations. Any shareholder desiring a copy of our bylaws will be furnished one without charge upon written request to the Secretary.
Annual Report
Washington REIT’s 2019WashREIT’s 2021 Annual Report to Shareholders is being mailed or made available electronically to shareholders concurrently with this Proxy Statement and does not form part of proxy solicitation material. Additionally, our shareholder letter is available at http://www.edocumentview.com/wre.
Shareholders may also request a free copy of our 20192021 Annual Report on Form 10-K, including applicable financial statements, schedules and exhibits by sending a written request to: Washington Real Estate Investment Trust, 1775 Eye Street, N.W.,NW, Suite 1000, Washington, D.C. 20006, Attention Investor Relations. Alternatively, shareholders may access the 20192021 Form 10-K and other financial information on our website at: www.washreit.com.
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| | | | |
/s/ Taryn D. FielderW. Drew Hammond | |
Taryn D. FielderW. Drew Hammond | |
Corporate Secretary | |
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April 9, 202015, 2022 |