UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Exchange Act of 1934 (Amendment No. )
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oSoliciting Material Pursuant to § 240.14a-12 | |
Duke Realty Corporation
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Dear Fellow Shareholder:
Corporate Responsibility
At the end of 2019, we hired a cordial invitation to attend our annual meetingVice President of shareholders. This meetingCorporate Responsibility, whose sole responsibility will be heldto lead our efforts in all facets of environmental, social, and governance (ESG) initiatives and the implementation of related strategies, policies, communications, and processes. We also committed to integrating innovative, sustainable building design features in alignment with LEED®, including constructing to LEED criteria and achieving certification in all new developments pursuant to a Sustainable Development Policy. LEED® - an acronym for Leadership in Energy and Environmental Design™ - is a registered trademark of the U.S. Green Building Council®. In addition, in November 2019, we were the first of the industrial REITs to issue a “green bond” in the United States. We are proud of our ESG efforts, but recognize that we still have opportunities to do more. We believe our new Vice President of Corporate Responsibility will help us do just that.
Board Refreshment and Diversity
We have continued our efforts to refresh and diversify our Board. Last year, we said farewell to two directors and added one new director, Mr. Warren M. Thompson, founder of Thompson Hospitality Corporation. Mr. Thompson brings business administration, corporate governance, board, financial, and entrepreneurship expertise to the Board. In January of this year, our Board also appointed Ms. Tamara D. Fischer, President and Chief Executive Officer of National Storage Affiliates Trust, as a new director. Ms. Fischer brings auditing, business administration, capital markets, investor relations, mergers and acquisitions, public company, and risk oversight expertise to the Board. Consistent with our Board Diversity and Inclusion Policy, and based on the self-identified diversity characteristics of our directors, our Board now includes four women and two people of color.
Talent Management
At the beginning of 2020, our Board’s Executive Compensation Committee changed its name to the Compensation and Human Capital Committee. In addition to reviewing executive compensation, the Compensation and Human Capital Committee now reviews associate turnover and diversity, as well as associate development and engagement programs. Making sure this is the responsibility of a Board committee reinforces how important talent management is to us.
We hope that you will be able to join us at our 2020 Annual Meeting of Shareholders on Wednesday, April 26, 2017, at 3:00 p.m. local time, at the Conrad Indianapolis, 50 West Washington Street, Indianapolis, Indiana 46204. To reserve your seat at the annual meeting, please call 317-808-6005 or send an e-mail to ir@dukerealty.com. As in past years, we believe that both the shareholders and management of Duke Realty Corporation can gain much through participation at this meeting. Our objective is to make it as informative and interesting as possible.
 |  | |
| James B. Connor | ||
| Chairman and Chief Executive Officer | Lead Director | |
TABLE OF CONTENTS
| Page | |
This summary highlights information contained elsewhere in this proxy statement, or the Proxy Statement.statement. This summary does not contain all of the information that you should consider, and you should read thethis entire Proxy Statementproxy statement carefully before voting.
2019 Business Highlights
For more information regarding our 2019 performance, please review our Annual Report on Form 10-K for the year ended December 31, 2019.
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Compensation Highlights
Corporate Responsibility Highlights
Corporate Governance Highlights
| Independence and Compliance | Stock Guidelines | ||
| þ | 92% of our Board of Directors (Board) is independent: All directors, other than the Chairman, are independent | þ | No hedging or pledging of our securities |
þ | Lead independent director role with significant authority and responsibilities | þ | Minimum stock ownership requirements |
þ | Fully independent Audit, Corporate Governance, Compensation and Human Capital, and Finance Committees | Other Governance | |
þ | Annual evaluations of Board and its committees | þ | Proxy access |
þ | Annual evaluations of individual directors | þ | Shareholders can amend bylaws |
| þ | At least 75% attendance at Board and committee meetings | þ | Shareholders can call a special meeting |
þ | Directors are elected annually | þ | No related-party transactions |
þ | Majority vote standard in uncontested director elections | þ | Corporate Responsibility Committee that reports to Board |
| Composition | þ | No shareholder rights plan | |
þ | 31% of our Board is female | ||
þ | Mix of director tenure, skills, and background that provides a balance of experience and institutional knowledge with fresh perspectives | ||
þ | Board Diversity and Inclusion Policy | ||
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2020 Proxy Information
Our Board is soliciting proxies to be voted at its 2017 Annual Meeting of Shareholders, or the Annual Meeting. The Proxy StatementOur proxy statement provides theshareholders with information shareholders need to knowneeded to vote by proxy or in person at the Annual Meeting. Shareholders do not need to attend the Annual Meeting in person in order to vote. Voting instructions are below.
Annual Meeting of Shareholders
Peninsula Hotel, 108 East Superior Street Chicago, Illinois 60611 | |
| February | |
| All shareholders of record as of the close of business on the Record Date are entitled to vote at the Annual Meeting. Each share of common stock outstanding on the Record Date is entitled to one vote on each item submitted for consideration. | |
proposals in this proxy.
 | Vote, sign, and date your proxy | |
 | Vote in person at the Annual Meeting. For | |
 | Call toll-free | |
 | Log on to | |
Note: Please refer to the specific instructions set forthprovided on the Notice Regarding the Availability of Proxy Materials for the Annual Meeting or your printed proxy materials. If you are a beneficial holder who holds shares in “street name,” please refer to the voting instruction form provided by your bank, broker, or other nominee.
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Proposal One: Election of 13 Directors
| Board Vote Recommendation | Page Reference (for more detail) | ||
FOR EACH DIRECTOR NOMINEE | 8 | ||
| • | We are asking shareholders to elect 13 directors to serve for a one-year term that will expire at the company’s 2021 Annual Meeting or until their successors have been elected and qualified. | ||
• | Each director nominee is elected annually by the affirmative vote of a majority of shareholders present in person or represented by proxy and entitled to vote. An abstention will result in a nominee receiving fewer affirmative votes and, therefore, will have the same effect as a vote against the nominee. Brokers are not entitled to vote uninstructed shares on director elections; therefore, broker non-votes are not considered entitled to vote and will not have an impact on the election of directors. | ||
Proposal Two: Advisory Vote to Approve the Compensation of Named Executive Officers
| Board Vote Recommendation | Page Reference (for more detail) | ||
| FOR | 34 | ||
• | We are asking shareholders to approve, on an advisory basis, the compensation of the named executive officers as discussed and disclosed in this proxy statement, including the Compensation Discussion and Analysis beginning on page 35 and the tables and narratives that follow under Executive Compensation beginning on page 53. | ||
• | The proposal to approve, on an advisory basis, the compensation of the company’s named executive officers will be approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Abstentions and broker non-votes will not be treated as votes cast and, therefore, will not have an impact on the vote to approve compensation. | ||
Proposal Three: Ratification of Reappointment of Independent Registered Public Accounting Firm
| Board Vote Recommendation | Page Reference (for more detail) | ||
| FOR | 67 | ||
• | We are asking shareholders to ratify the reappointment of KPMG LLP as the company’s independent registered public accountants for the 2020 fiscal year. | ||
• | To ratify the selection of KPMG, votes cast in favor of the proposal must exceed votes cast against the proposal. Abstentions will not be treated as votes cast and, therefore, will not have an impact on the ratification of KPMG as our independent registered public accountants. The ratification of the selection of KPMG as the company’s independent registered public accountants for 2020 is considered a discretionary matter, and brokers will be permitted to vote uninstructed shares as to such matter. | ||
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Other
If you haveare a beneficial owner (i.e., you hold your shares held bythrough a broker or other nominee), you may instruct your broker to vote your shares by following the instructions that the broker provides to you.provides. If you sign over voting rights but do not provide specific instructions, your broker will vote on your behalf only on the proposals over which it has discretionary authority (Proposal Three). For Proposals One and Two, your instructions will be counted as broker non-votes. Most brokers offer voting by mail, telephone, and on the Internet.
If you are a shareholder of record, you may vote by:
returning a properly executed proxy card;
voting in person at the Annual Meeting; or
following the instructions on the Notice to vote online or by telephone.
When you return a properly executed proxy card, the Companywe will vote the shares that the proxy card represents in accordance with your directions. If you return the signed proxy card with no direction on a proposal, the Companywe will vote your proxy “FOR”proxy:
•“FOR” each director nominee in Proposal One, “FOR”One;
•“FOR” Proposal Two, in favor of holding a non-binding shareholder vote on the compensation of the Company’s named executive officers every “1 Year,”Two;
•“FOR” Proposal Three; and “FOR” Proposal Four, and
•in accordance with the proxy holder’s discretion, on any other matter that may properly come before the Annual Meeting, including any adjournmentadjournments or postponement thereof.
Your proxy gives discretionary authority to Mr. James B. Connor, our Chairman and Chief Executive Officer (CEO), and Ms. Ann C. Dee, with respect toour Executive Vice President, General Counsel and Corporate Secretary, on any other matters that might be brought before the Annual Meeting. If you are a record owner and you sign a proxy card but do not provide instructions with respect to any proposalregarding the proposals on such card, the proxy holdercard, your shares will votebe voted in accordance with the BoardBoard’s recommendations, as noted above.
You may revoke your proxy at any time before its exercise by:
| (i) | delivering written notice of revocation to Ms. Dee at 8711 River Crossing Blvd., Indianapolis, Indiana 46240; |
| (ii) | submitting to the company a duly executed proxy card with a later date; |
| (iii) | voting via the Internet or telephone at a later date; or |
| (iv) | appearing at the Annual Meeting and voting in person. |
Written revocations will not be effective until received by Ms. Dee at or before the Annual Meeting. Telephone and Internet revocations will not be effective unless, in the case of Director's recommendations for such proposal.shareholders who hold their shares through our 401(K) Plan, received on or before 11:59 p.m., Indianapolis local time, on April 23, 2020, and, in the case of all other shareholders, received on or before 11:59 p.m., Indianapolis local time, on April 27, 2020. If you are a beneficial owner, (i.e.you will need to obtain a valid proxy from your broker or other nominee that is the record holder to vote in person at the Annual Meeting.
We are offering shareholders the opportunity to confirm their votes were cast in accordance with their instructions. Vote confirmation is consistent with our commitment to sound corporate governance standards and an important means to increase transparency. Beginning March 14, 2020, and for up to two months after the Annual Meeting, you may confirm your vote beginning 24 hours after your vote is received, whether it was cast by proxy card, electronically, or telephonically. You may confirm that your instructions were received and cast per your instructions included by logging onto https://www.proxyvote.com using your control number (located on your Notice Regarding the Availability of Proxy Materials or proxy card). If you hold your shares through a broker or other nominee) and you sign voting instructions but do not provide instructions with respectnominee, the ability to any proposal,confirm your vote may be affected by the rules of the broker will vote on your behalf only on such proposals over which it has discretionary authority (Proposal Four),or other nominee and for allthe confirmation may not confirm whether the broker or other proposals (Proposals One, Two and Three), your instructions will be counted as broker non-votes.nominee allocated the correct number of shares to you.
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Mailing Date/Internet Availability of Proxy Materials
This Proxy Statement,proxy statement, the enclosed proxy card, and our 20162019 Annual Report or a Notice of InternetRegarding the Availability of Proxy Materials or the Notice,(the Notice) were mailed or e-mailed to shareholders beginning on or about March 15, 2017.11, 2020. The Notice containsincludes instructions on how to access the proxy materials online. Shareholders who received the Notice by mail or e-mail will not receivebe mailed a printed copy of the proxy materials in the mail unless they request a copy in the manner described in the Notice. All shareholders will be able to access the proxy materials on the website referred to in the
Notice and this Proxy Statementproxy statement and will be able to request to receive a printed set of the proxy materials by mail or electronically, in either case, free of charge.
In addition to the solicitation of proxies by mail, Duke Realty officers and other associates may solicit proxies by telephone, facsimile, e-mail, or personal interviews without additional compensation. We also expect brokerage houses to forward proxy materials to shareholders at our request. Receipt of more than one proxy card or voting instruction form indicates that a shareholder has multiple accounts at the transfer agent or with stockbrokers. Shareholders should complete and return all proxy cards and voting instruction forms received to ensure that all of their shares are voted.
Shareholders of record who want to receive future proxy statements and annual reports electronically should log on to https://www.proxyvote.com and follow the instructions to vote using the Internet and, when prompted, indicate that they want to access proxy materials electronically in the future. Shareholders will need to refer to the company number and control number found on the proxy card. Shareholders may cancel electronic enrollment if they later decide to receive proxy statements and annual reports by such persons.regular mail.
Information about Communications with Duke Realty Corporation and Our Board of Directors
Board of Directors
c/o the Corporate Secretary
Indianapolis, Indiana 46240
You may also contact the Company’se-mail Duke Realty’s Lead Director by emailing him at leaddirector@dukerealty.com.
In addition, as required by the listing standards established by the NYSE, the Company provides a method for shareholders and other interested parties tomay communicate with theDuke Realty’s independent, non-management directors of the Board of Directors and/or the entire Board, of Directors. Suchas required by the New York Stock Exchange’s (NYSE) listing standards. Written communications to non-management directors should be directed to the non-management directors by writingsent to:
Non-Management Directors
c/o Corporate Secretary
8711 River Crossing Blvd.
Indianapolis, Indiana 46240
Duke Realty’s Corporate Secretary may be contacted by sending correspondence to: 8711 River Crossing Blvd., Indianapolis, Indiana 46240, Attn: Corporate Secretary.
Additional Information
Duke Realty Corporation 600 East 96th Street, Suite 100,
8711 River Crossing Blvd.
Indianapolis, Indiana 46240
Attention: Investor Relations.Relations
PROPOSAL ONE: ELECTION OF TEN13 DIRECTORS TO SERVE
ON THE COMPANY’S BOARD OF DIRECTORS FOR A ONE-YEAR TERM
ENDING ON THE DATE OF THE COMPANY’S 20182021 ANNUAL MEETING
The Board of Directors currently consists of twelve13 members. On January 25, 2017,29, 2020, based on the recommendation of the Corporate Governance Committee, the Board of Directors nominated each of the existing13 directors with the exception of Mr. Dennis D. Oklak, who is the current Chairman of the Board of Directors, for re-election to serve for a one-year term that will expire at the Company’s 20182021 Annual Meeting or when their successors have been elected and qualified. In addition, on February 21, 2017, Mr. Thomas J. Baltimore, Jr. informed the Company that he will not stand for re-election at the Annual Meeting. Accordingly, the Board reduced the size of the Board to be ten directors, effective as of the date of the Annual Meeting.
Each nominee has agreed to be named in this Proxy Statementproxy statement and to serve if elected. The Board of Directors believes that all of the nominees for director will be available for election. However, if a nominee is unavailable for election, the proxy holders may vote for another nominee proposed by the Board of Directors.Board. If the Board of Directors does not propose another director nominee prior to or at the Annual Meeting, the Board, of Directors, by resolution, may reduce the number of directors to be elected at the Annual Meeting.
The election of each director requires the affirmative vote of at least a majority of the shareholders present in person or represented by proxy and entitled to vote for the election of directors. An abstention will result in a nominee receiving fewer votes and, therefore, will have the same effect as a vote against the nominee. Brokers are not entitled to vote uninstructed shares in director elections; therefore, broker non-votes are not considered entitled to vote and will not have an impact on the election of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF ALL OF THE DIRECTOR NOMINEES NAMED ON THE FOLLOWING PAGES.IN THIS PROXY STATEMENT.
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BOARD EVALUATIONS AND MEMBERSHIP CRITERIA
The Corporate Governance Committee, whose responsibilities are described in “Board Committees,” evaluates the effectiveness of the Board and each of its committees annually. As part of this evaluation, each director fills out an assessment of the entire Board as well as the committees on which he or she serves. The Corporate Governance Committee then reviews a compilation of the results of the various self-assessments. In addition, each year the General Counsel also conducts a candid, in-person self-assessment interview with each Board member, designed to enhance his or her participation and role as a director, as well as to assess the competencies and skills each individual director is expected to bring to the Board.
The Corporate Governance Committee believes that though the company can benefit from experienced directors, periodic refreshment of the Board is important. The Corporate Governance Committee, therefore, regularly discusses director succession and reviews potential candidates. The Corporate Governance Committee may employ a search firm to identify director candidates. In 2019, we hired Ferguson Partners Ltd. to review potential director candidates. Key factors that the Corporate Governance Committee considers when determining whether to appoint directors include:
In nominating members for election to the Board, the Corporate Governance Committee will consider written nominations by shareholders. Our bylaws state that the Corporate Governance Committee must consider these nominees as long as the recommendation is submitted to our Corporate Secretary in a timely manner and the nomination complies with the requirements in our bylaws. Timing requirements are described in “Shareholder Proposals and Nominations for 2021 Annual Meeting.” The Corporate Governance Committee screens all potential candidates in the same manner regardless of the source of recommendation. However, the Corporate Governance Committee may, in its sole discretion, reject any recommendation for any reason. The complete set of requirements for the submission of a shareholder nomination is included in our bylaws. The Board has also adopted a proxy access bylaw, which allows certain eligible shareholders to nominate director candidates and requires us to include such candidates in our proxy materials for an annual meeting of shareholders that involves the election of directors. For more information about the eligibility and other requirements to submit director nominees pursuant to our proxy access bylaw, see “Nominees for Election of Directors-Proxy Access Policy” and “Shareholder Proposals and Nominations for 2021 Annual Meeting.”
Diversity is an important strategic initiative at Duke Realty and has relevance to our associates, suppliers, and shareholders. We also are committed to diversity at the Board level. Having a Board composed of men, women, and people of color with different perspectives facilitates more balanced, wide-ranging discussion in the boardroom. The Board also is committed to inclusion--ensuring that all directors feel welcomed, valued, and able to contribute their opinions. Accordingly, the Board has adopted a Board Diversity and Inclusion Policy, which is available on the Investor Relations/Corporate Governance section of our website at http://www.dukerealty.com. Pursuant to the Board Diversity and Inclusion Policy, our Board considers director nominees from diverse backgrounds, and the Corporate Governance Committee periodically reviews the director selection process to ensure that women and people of color are included. Pursuant to this policy, and using the self-identified diversity characteristics of our directors, our Corporate Governance Committee nominated four women and two people of color to the Board this year.
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The Board believes that it is important to have directors with strong leadership experience as well as experience in the real estate industry and operations. A balance of perspectives from other industries also is critical to well-rounded oversight. The chart below highlights the industry experience and qualifications of our nominees to the Board as more fully described in “Nominees for Election as Directors.”
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The gender diversity and tenure of our director nominees is as follows:
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NOMINEES FOR ELECTION AS DIRECTORS
 | |||
Director Since: | |||
Board Committee: | |||
Qualifications: Mr. | |||
Since 2019, Mr. | |||
 | |||
James B. Connor, Age | |||
Director Since: 2015 | |||
Board Committee: N/A | |||
Qualifications: Mr. Connor, who joined the | |||
| Mr. Connor was named the | |||
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 | Ngaire E. Cuneo, Age | ||
Director Since: 1995 | |||
Board | |||
Qualifications: Ms. Cuneo brings | |||
| Ms. Cuneo | |||
 | ||
Charles R. Eitel, Age | ||
Director Since: 1999 | ||
Board Committee: Corporate Governance | ||
Qualifications: Mr. Eitel brings | ||
| Mr. Eitel is the former Chief Executive Officer and Chairman of the Board of WS Packaging Group, Inc., a privately owned producer of printed, packaged goods. Mr. Eitel | ||
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 | Tamara D. Fischer, Age 64 | ||
Director Since: 2020 | |||
Board Committee: N/A | |||
Qualifications: Ms. Fischer brings auditing, business administration, capital markets, investor relations, mergers and acquisitions, public company, and risk oversight expertise to the Board. | |||
| Ms. Fischer has served since January 1, 2020, as a member of the Board of Trustees and the President and Chief Executive Officer of National Storage Affiliates Trust, a real estate investment trust focused on the ownership, operation, and acquisition of self-storage properties. Ms. Fischer joined the company at its inception in 2013, serving as its Executive Vice President and Chief Financial Officer until she was promoted to President and Chief Financial Officer on July 1, 2018. From 2004 to 2008, Ms. Fischer served as the Executive Vice President and Chief Financial Officer of Vintage Wine Trust, Inc., a real estate investment trust created to acquire and own vineyards, wineries, and other real estate related to the wine industry. She was involved in all aspects of the company’s capital markets, investor relations, and financial reporting activities. She continued to serve Vintage Wine Trust, Inc. as a consultant through its dissolution in 2010 and served in various other consulting positions until becoming involved with National Storage Affiliates. From 1993 to 2003, Ms. Fischer served as the Executive Vice President and Chief Financial Officer of Chateau Communities, Inc., one of the largest real estate investment trusts in the manufactured home community sector. There, she was responsible for overseeing the company’s initial public offering and several mergers and acquisitions. She was also involved in capital markets activity, investor relations, financial reporting, and administrative responsibilities. Ms. Fischer remained at Chateau Communities, Inc. through its sale to Hometown America LLC in 2003. Prior to her experience at Chateau Communities, Inc., Ms. Fischer spent nine years at Coopers & Lybrand (now PricewaterhouseCoopers), initially as an accountant in the real estate practice and later as an audit manager. | |||
 | Norman K. Jenkins, Age 57 | ||
Director Since: 2017 | |||
Board Committee: Compensation and Human Capital | |||
Qualifications: Mr. Jenkins brings auditing, business administration, capital markets, entrepreneurship, human capital, mergers and acquisitions, and public company expertise to the Board. | |||
| Mr. Jenkins is President and Chief Executive Officer of Capstone Development, LLC, a privately-held developer of institutional-quality lodging assets. Prior to founding Capstone Development, LLC in 2009, Mr. Jenkins served in various roles for Marriott International, Inc. between 1992 and 2008, including most recently as Senior Vice President, North American Lodging Development. Mr. Jenkins began his career with McDonald’s Corporation holding finance and operating roles between 1986 and 1992. Mr. Jenkins currently serves on the Boards of The Howard University School of Business and the Developer Roundtable of Washington, DC. | |||
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 | Melanie R. Sabelhaus, Age | ||
Director Since: 2012 | |||
Board Committee: | |||
Qualifications: Ms. Sabelhaus | |||
| Ms. Sabelhaus has been | |||
Peter M. Scott, III, Age | ||
Director Since: 2011 | ||
Board Committees: Audit and | ||
Qualifications: Mr. Scott brings business administration, capital markets, consulting, corporate development, corporate governance, governmental and regulatory matters, human capital, investor relations, mergers and acquisitions, public company, and risk oversight expertise to the Board. | ||
| Mr. Scott was Chief Financial Officer of Progress Energy, Inc. from 2000 to 2003 and from 2005 until his retirement in 2008. From 2004 to 2008, Mr. Scott was also President and Chief Executive Officer of Progress Energy Service Company LLC and had responsibility for all financial and administrative functions of Progress Energy, Inc. Mr. Scott also held various other management positions with Progress Energy, Inc. or its subsidiaries between 2000 and 2008, including responsibilities for its | ||
 | David P. Stockert, Age 57 | ||
Director Since: 2017 (Lead Director since 2019) | |||
Board Committee: Corporate Governance, Chairperson | |||
Qualifications: Mr. Stockert brings business administration, capital markets, investor relations, mergers and acquisitions, and public company expertise to the Board. | |||
| In 2019, Mr. Stockert became one of three general partners of Sweetwater Opportunity Fund, L.P., a real estate opportunity fund headquartered in Atlanta, Georgia. The fund was formed to invest in commercial property in the Southeast and Texas, targeting primarily sub-institutional, opportunistic, situational, and relationship-based investments. From 2002 to 2016, Mr. Stockert served as Chief Executive Officer and President of Post Properties, Inc. and as President and Chief Operating Officer from 2001 to 2002. Prior to joining Post Properties, Inc., Mr. Stockert served as Executive Vice President of Duke Realty Corporation from 1999 to 2000, and as Senior Vice President and Chief Financial Officer of Weeks Corporation from 1995 to 1999. Prior to joining Weeks Corporation, Mr. Stockert was an investment banker and a certified public accountant. Since 2016, Mr. Stockert has served on the Board of Directors of Mid-America Apartment Communities, Inc., a publicly traded REIT that invests in apartments. Mr. Stockert also serves on multiple civic and charitable boards in the Atlanta area. | |||
 | Chris T. Sultemeier, Age 57 | ||
Director Since: 2018 | |||
Board Committee: Finance | |||
Qualifications: Mr. Sultemeier brings business administration, human capital, international business, public company, and sustainability expertise to the Board. | |||
| Mr. Sultemeier served as Executive Vice President Logistics of Walmart Stores, Inc. and President/Chief Executive Officer of Wal-mart Transportation LLC between 2012 and 2017. Prior to that, Mr. Sultemeier held various roles in logistics and merchandising for Walmart Stores, Inc., which he joined in 1989. Mr. Sultemeier served as a U.S. Army Captain between 1984 and 1989. Mr. Sultemeier currently serves on the U.S. Congressional Medal of Honor Foundation Board of Directors and teaches at M.I.T. in its Supply Chain/Transportation Master’s Program. | |||
 | Michael E. Szymanczyk, Age | ||
Director Since: 2014 | |||
Board Committees: Audit and Finance; Chairperson of Finance | |||
Qualifications: | |||
| Mr. Szymanczyk currently serves as Chief Executive Officer of Endurance Capital LLC, a | |||
| family-owned real estate investment venture, a position he has held since 2006. Mr. Szymanczyk was the Chairman of the Board and Chief Executive Officer of Altria Group, Inc. from 2008 until 2012. From 2002 through 2008, Mr. Szymanczyk served as Chairman, President and Chief Executive Officer of Philip Morris USA Inc. Prior to that, he served in various sales and marketing roles at Proctor & Gamble, Inc. and Kraft, Inc. Mr. Szymanczyk | |||
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 | Warren M. Thompson, Age 60 | ||
Director Since: 2019 | |||
Board Committee: Finance | |||
Qualifications: Mr. Thompson brings business administration and entrepreneurship expertise to the Board. | |||
| Mr. Thompson is Chairman of the Board and President of Thompson Hospitality, a private retail food and facilities management firm. Mr. Thompson founded Thompson Hospitality in 1992. Mr. Thompson began his career with the Marriott Corporation in 1983, where he started with the Restaurant Fast Track Management Development Program and served in 15 positions in nine years, ending as Vice President Operations for the Host Division. Mr. Thompson has served on the Board of Directors of Compass Group North American, a public food service and support services company since 1997. | |||
 | Lynn C. Thurber, Age | ||
Director Since: 2008 | |||
Board Committee: | |||
Qualifications: Ms. Thurber brings auditing, capital markets, corporate governance, human capital, international business, | |||
| Ms. Thurber | |||
The Board of Directors views the selection of the Chairman and Chief Executive Officer or CEO,(CEO) as one of its most important responsibilities. As a result, theThe Board of Directors believes that it should remain free to determine whether these positions should be combined or separated based on circumstances of the Company and the composition of the Board of Directors at any given time. The Board of Directors has determined that effective as of the Annual Meeting, a combined Chairman and CEO is in the best interests of the Companycompany at this time and has chosen Mr. James B. Connor, who is our Chief Executive Officer,CEO, to serve also as the Chairman of the Board. Prior to the Annual Meeting, our former CEO, Mr. Dennis D. Oklak, is serving as our Chairman of the Board, which the Board of Directors believes is appropriate given Mr. Oklak's long tenure as a director and deep knowledge of our history and culture.
as Lead Director. As set forthoutlined in our corporate governance guidelines, the Lead Director chairs the executive sessions of the independent directors, which are held at least quarterly. The Lead Director also serves as a liaison between the CEO and the independent directors, approves information sent to the Board, of Directors and approves meeting agendas and schedules to assureensure that there is sufficient time for discussion of all agenda items.
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We firmly believe that our board structure allows for appropriate oversight by the Board of Directors in fulfilling its duties to our Companycompany and to our shareholders.
Board Oversight of Risk Management
The Board of Directors is primarily responsible for overseeing the Company’scompany’s risk management processes. A portion of this responsibility has been delegated by the Board of Directors to each of the committees of the Board of Directors with respect to the assessment of the Company’scompany’s risks and risk management in its respective areas of oversight. The focus of each of the committees with respect to risk management is as follows:
These committees and the full Board of Directors focus on the most significant risks facing the Companycompany and the Company’scompany’s general risk management strategy and also ensure that risks undertaken by the Companycompany are consistent with the Board of Directors’Board’s appetite for risk. While the Board of Directors oversees the Company’scompany’s risk management, Companycompany management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing the Companycompany and that the leadership structure of the Board of Directors supports this approach.
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Management works with the Board to assess the company’s risks as follows:
Cyber Security
Cyber security is a growing risk for companies. While the Audit Committee is tasked with overseeing cyber security, it is of particular concern to the full Board, as well. Management reports at least annually to the full Board, as well as quarterly to the Audit Committee, regarding the steps the company is taking to protect the company from cyber attacks or intrusions. Management has created a Cyber Security Committee that meets regularly to discuss the cyber risks facing the company. The Cyber Security Committee focuses on the following strategy areas: legal and compliance; operations and technology; business continuity and crisis management; leadership and governance; human factors; and information risk management.
Independent Directors
Under the Company’scompany’s articles of incorporation, at least three-fourths of the directors must be persons who are “unaffiliated directors,” which means only those persons who are not officers or employeesassociates of the Companycompany or any of its affiliates. Because none ofSince Mr. William Cavanaugh III, Mr. Alan H. Cohen,John P. Case; Ms. Ngaire E. Cuneo,Cuneo; Mr. Charles R. Eitel,Eitel; Ms. Tamara D. Fischer; Mr. Norman K. Jenkins; Ms. Melanie R. Sabelhaus,Sabelhaus; Mr. Peter M. Scott, III,III; Mr. Jack R. Shaw,David P. Stockert; Mr. Chris T. Sultemeier; Mr. Michael E. Szymanczyk, orSzymanczyk; Mr. Warren M. Thompson; and Ms. Lynn C. Thurber isare not currently an officerofficers or employeeassociates of the Companycompany or any of its affiliates, 90%92% of the director nominees are unaffiliated directors.
In addition, under the enhanced corporate governance listing standards of the New York Stock Exchange, or NYSE, at least a majority of the Company’scompany’s directors, and all of the members of the Company’scompany’s Audit, Committee, Executive Compensation Committeeand Human Capital, and Corporate Governance Committee,Committees, must meet the test of “independence” as defined under the listing standards of the NYSE. The NYSE listing standards provide that to qualify as an “independent” director, in addition to satisfying certain bright-line criteria, the Board of Directors must affirmatively determine that a director has no material relationship with the Companycompany (either directly or as a partner, shareholder, or officer of an organization that has a relationship with the Company)company) that would compromise suchthe director’s independence.In January 2017,2020, the Board of Directors undertook a review of director independence. During this review, the Board of Directors considered, among other things, relationships and transactions during the past three years between each director or any member of his or her immediate family, on the one hand, and the Companycompany and its subsidiaries and affiliates, on the other hand. The purpose of the review was to determine whether any such relationships or transactions
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were inconsistent with a determination that the director is independentdirector’s independence as defined under the NYSE listing standards. Based on the review, the Board of Directors has determined that all of the unaffiliated director nominees and Mr. Thomas J. Baltimore are independent under the listing standards of the NYSE.
the Audit Committee satisfy these enhanced independence requirements.
Finally, in affirmatively determining the independence of any director who will serve on the Executive Compensation and Human Capital Committee, the Board of Directors must consider all factors specifically relevant to determining whetherregarding a director has adirector’s relationship to the Companycompany that is material tocould affect that director’s ability to be independent from management in connection with thehis or her duties, of a member of the Executive Compensation Committee, including (1) the source of such director’s compensation, of the director, including any consulting, advisory, or other compensatory fee paid by the Companycompany to suchthe director; and (2) whether the director is affiliated with the Company,company, its subsidiaries, or its affiliates.
| Executive | Corporate | ||||||||||||||||||||||||||
| Board | Audit | Compensation | Finance | Governance | |||||||||||||||||||||||
| Thomas J. Baltimore, Jr. | Member | Member | |||||||||||||||||||||||||
| William Cavanaugh III | Lead Director | Chairman | |||||||||||||||||||||||||
| Alan H. Cohen | Member | Chairman | |||||||||||||||||||||||||
| James B. Connor | Member | ||||||||||||||||||||||||||
| Ngaire E. Cuneo | Member | Member | Member | ||||||||||||||||||||||||
| Charles R. Eitel | Member | Member | |||||||||||||||||||||||||
| Martin C. Jischke, Ph.D. (1) | Member | Member | |||||||||||||||||||||||||
| Dennis D. Oklak | Chairman | ||||||||||||||||||||||||||
| Melanie R. Sabelhaus | Member | Member | |||||||||||||||||||||||||
| Peter M. Scott, III | Member | Member | Member | ||||||||||||||||||||||||
| Jack R. Shaw | Member | Chairman | Member | ||||||||||||||||||||||||
| Michael E. Szymanczyk (2) | Member | Member | Chairman | ||||||||||||||||||||||||
| Lynn C. Thurber | Member | Member | |||||||||||||||||||||||||
| Robert J. Woodward Jr. (1) | Member | Member | Member | ||||||||||||||||||||||||
| Number of 2016 Meetings | 4 | 7 | 5 | 6 | 4 | ||||||||||||||||||||||
Majority Voting Policy for Director Elections
The Company’scompany’s articles of incorporation provide that the election of directors at an annual meeting shall be by the affirmative vote of at least a majority of the shareholders present in person or by proxy and entitled to vote at such meeting. In addition, the Company’scompany’s corporate governance guidelines provide for a majority voting policy for the election of directors. Pursuant to this policy, in any non-contested election of directors, any nominee for director who does not receive the affirmative vote of at least a majority of the votes entitled to vote thereon present in person or by proxy or a “Majority(an Against Vote,”Vote) shall promptly tender his or her resignation following certification of the shareholder vote. The Corporate Governance Committee shall consider the resignation offer and recommend to the Board of Directors the action to be taken with respect to such offer of resignation. Within 90 days following certification of the shareholder vote, the Board of Directors will act on the recommendation of the Corporate Governance Committee.
Any director who tenders his or her resignation pursuant tounder this provision shall not participate in the Corporate Governance Committee recommendation or Board of Directors action regarding whether to accept the resignation offer.
If each member of the Corporate Governance Committee receives a Majorityan Against Vote in the same election, then the independent directors who did not receive a Majorityan Against Vote shall appoint a committee amongst themselves to consider the resignation offers and recommend to the Board of Directors whether to accept them.
If the only three or fewer directors who do not receive a Majorityan Against Vote in the same election, constitute three or fewer directors, all directors may participate in the action regardingdecision of whether or not to accept the resignation offers.
Proxy Access Policy
On October 25, 2017, the Board approved the amendment and restatement of the company’s bylaws to implement proxy access. These bylaws state that whenever the Board solicits proxies for the election of directors at an annual meeting of shareholders, subject to certain requirements, a shareholder, or a group of up to 20 shareholders, owning three percent or more of the company’s outstanding common stock continuously for at least three years can require the company to include in its proxy materials for such annual meeting director nominations for up to the greater of:
•20% of the number of directors up for election, rounding down to nearest whole number; or
•two directors.
Shareholder requests to include shareholder nominees in the company’s proxy materials for the 2021 annual meeting of shareholders must be received by the Corporate Secretary no earlier than October 12, 2020, and no later than November 11, 2020, and must satisfy the requirements specified in the company’s bylaws.
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BOARD COMMITTEES
The Board has four standing committees: the Audit Committee, Corporate Governance Committee, Compensation and Human Capital Committee, and Finance Committee. All committee members are independent. In addition, each member of the Audit Committee satisfies the enhanced independence requirements for audit committee members as defined in the NYSE listing standards and SEC rules. Similarly, each member of the Compensation and Human Capital Committee satisfies the enhanced independence standards for compensation committee members as defined in the NYSE listing standards and SEC rules. The Board has adopted written charters for each of these committees. The charters are available on the Investor Relations/Corporate Governance section of our website at www.dukerealty.com. In addition, the Investor Relations/Corporate Governance section of our website contains procedures established by the Audit Committee for submitting complaints or concerns about our accounting, internal accounting controls, or auditing matters. The following table summarizes the primary responsibilities of the committees.
| Committee | Primary Responsibilities |
| Audit | • provides assistance to the Board in fulfilling its responsibility to shareholders related to corporate accounting, reporting practices, the quality and integrity of financial reports, cyber security, and other operating controls of the company |
| • selects the company’s independent auditors and engagement partner in the best interests of the company and its shareholders | |
| • oversees the independent auditors’ activities | |
| • supervises and assesses the performance of the company’s internal audit department | |
| Corporate Governance | • makes recommendations to the Board regarding corporate governance policies and practices and oversees compliance with such policies and practices |
| • oversees succession planning for senior management and the Board | |
| • recommends criteria for membership on the Board | |
| • nominates members for election to the Board | |
| • makes recommendations to the Board concerning the members, size, and responsibilities of each of the committees | |
• periodically reviews our corporate responsibility practices | |
| Compensation and Human Capital | • reviews and approves the compensation of the Board, CEO, and other executive officers of the company and its affiliates |
| • oversees the company’s compensation strategies, programs, plans, and policies to ensure that the Board, CEO, other executive officers, and key management associates of the company and its affiliates are compensated effectively and in a manner consistent with the stated compensation strategy of the company | |
| • oversees the administration of all company benefit plans | |
| • reviews and approves the individual elements of compensation for the executive officers and directors of the company | |
| • reviews associate turnover and diversity, as well as associate development and engagement programs | |
| Finance | • reviews and evaluates the financial policies, plans, and structure of the company, its subsidiaries and affiliates |
| • reviews the capital structure, investment decisions, financial commitments, and relationships with external sources of financing and rating agencies | |
| • reviews and authorizes asset acquisitions, asset dispositions, and development transactions exceeding threshold amounts established by the Board | |
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2019 BOARD COMMITTEE MEMBERSHIP AND MEETINGS
The following table provides membership and meeting information for each of the committees of the Board during 2019.(1)
| Board | Audit | Compensation and Human Capital | Finance | Corporate Governance | |||||||||||||||||||||
| John P. Case | Member | Member | |||||||||||||||||||||||
William Cavanaugh III(2) | Former Member | Former Chairperson | |||||||||||||||||||||||
Alan H. Cohen(2) | Former Member | Former Member | |||||||||||||||||||||||
| James B. Connor | Chairman | ||||||||||||||||||||||||
| Ngaire E. Cuneo | Member | Member | |||||||||||||||||||||||
| Charles R. Eitel | Member | Member | |||||||||||||||||||||||
| Norman K. Jenkins | Member | Member | |||||||||||||||||||||||
| Melanie R. Sabelhaus | Member | Chairperson | |||||||||||||||||||||||
| Peter M. Scott, III | Member | Chairperson | Member | ||||||||||||||||||||||
| David P. Stockert | Lead Director | Chairperson | |||||||||||||||||||||||
| Chris T. Sultemeier | Member | Member | |||||||||||||||||||||||
| Michael E. Szymanczyk | Member | Member | Chairperson | ||||||||||||||||||||||
| Warren M. Thompson | Member | Member | |||||||||||||||||||||||
| Lynn C. Thurber | Member | Member | |||||||||||||||||||||||
| Number of 2019 Meetings | 6 | 4 | 5 | 9 | 4 | ||||||||||||||||||||
(1) | All directors, with the exception of Messrs. William Cavanaugh III and Alan H. Cohen, have served on the respective committee(s) listed above since May 1, 2019. |
(2) | Messrs. Cavanaugh and Cohen served as directors until the annual meeting of shareholders held on April 24, 2019, when they did not stand for re-election. |
Independent directors met separately in executive sessions four times in 2019, in addition to the committee meetings noted above. As Lead Director, Mr. Cavanaugh presided over the first of these executive sessions, and Mr. David P. Stockert presided over the last three.
Attendance at Board Meetings and the Annual Meeting
All of our directors attended at least 75% of the meetings of the Board of Directors in 20162019 during the term of their tenure, including meetings of the committees of which they were members. The Companycompany encourages all of its directors to attend the annual meeting and, in 2016,2019, all directors, attended such meeting with the exception of Mr. Baltimore.Warren M. Thompson, attended the meeting.
DIRECTOR COMPENSATION
The Companycompany does not pay additional compensation to directors who are also employees of the Company. The non-employeecompany. Non-employee directors received the following compensation in 2016:2019:
an annual retainer of $90,000,$100,000, payable in cash unless otherwise elected to be paid in shares of our common stock.stock
an annual supplemental retainer for the directors serving in the roles indicated in the following table:
| Service Description | Annual Amount | ||
Lead Director/Corporate Governance Committee | $ | ||
| Audit Committee | $20,000 | ||
| $ | |||
| Finance Committee | $ | ||
| Director on more than one committee | $5,000 | ||
(1) | The positions of Lead Director and Corporate Governance Committee |
an annual grant of restricted stock units or RSUs,(RSUs), pursuant to the Duke Realty Corporation 2015 Non-Employee Directors’ Compensation Plan or the 2015(2015 Directors’ Plan.Plan). These RSUs were granted on February 10, 20162019, and with the exception of Messrs. Cavanaugh and Cohen, all such RSUs vested in full on the first anniversary of the grant date. The RSUs granted to Messrs. Cavanaugh and Cohen on February 10, 2019, vested upon their retirement from the Board. The number of RSUs awarded was determined by dividing the grant value of $90,000$125,000 by the closing stock price on the grant date.
Newly appointed non-employee directors are entitled to a one-time grant of RSUs valued at $50,000. These awards vest in full on the second anniversary of the grant date of grant.assuming the recipient remains a director at such time. All retainers are paid on a quarterly basis in arrears, for the previous quarter’s service.
On an annual basis, the Compensation and Human Capital Committee of the Board conducts a competitive review of our non-employee director compensation program using the same peer group of similarly-sized REITs that are used for executive compensation comparisons. Based on these reviews, the Compensation and Human Capital Committee may make changes to the non-employee director compensation program for the upcoming year. The last review was conducted in September 2019 and indicated that our non-employee director compensation levels generally approximate the peer group median, with the exception of the annual grant of RSUs for non-employee directors and the retainer for the Chairpersons of the Audit Committee and the Corporate Governance Committee, which were below the median. Effective January 1, 2017, the annual retainer was increased to $100,000, and the value of2020, the annual grant of RSUs was increased to $125,000.$135,000, the supplemental retainer for the Chairperson of the Audit Committee was increased to $25,000, and a supplemental retainer of $15,000 for the Chairperson of the Corporate Governance Committee was added. The new supplemental retainers will be paid as follows:retainer for the Chairperson of the Corporate Governance Committee is in addition to the $30,000 supplemental retainer for the Lead Director.
Non-employee directors may elect to defer receipt of all or a portion of their director compensation payable in cash, stock, or RSUs pursuant to the Directors’ Deferred Compensation Plan. The deferredDeferred compensation and earnings thereon are towill be paid to the directors after they cease to be members of the Board of Directors.Board. Deferred compensation that otherwise is otherwise payable in shares
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of common stock is invested in a “deferred stock account” under the Directors’ Deferred Compensation Plan. Deferred compensation that is payable in cash may be invested in either a deferred stock account or an “interest account” under suchthis plan. Each of these types ofThese deferral accounts isare described below.
Deferred Stock Account. This account allows the director, in effect, to invest his or her deferred compensation in shares of the Company’scompany’s common stock. Funds in this account are credited as hypothetical shares of the Company’scompany’s common stock based on the market price at the time the compensation would otherwise have been paid. Dividends on these hypothetical shares are deemed to be reinvested in additional hypothetical shares based upon the market price of the Company’scompany’s common stock on the date dividends are paid. Actual shares are issued only when a director ends his or her service on the Board of Directors.Board.
Interest Account. Through December 31, 2016,2019, amounts in this account earned interest at a rate equal to 120% of the long-term applicable federal rate, as published by the Internal Revenue Service.
Stock Ownership Policies
Pursuant to the Company’sour Director and Executive Stock Ownership Guidelines or the Stock(Stock Ownership Guidelines,Guidelines), a stock ownership goal for each director is determined on an individual basis, first in dollars equal to five times the director’s annual retainer, and then by converting that amount to a fixed number of shares. Each director has five years to attain the target number of shares. A copy of these Stock Ownership Guidelines can be found on the Investor Relations/Corporate Governance section of the Company’sour website at http://www.dukerealty.com.
Stock Retention Requirements.
Until directors reach their targeted share ownership, they are required to retain any shares that they owned on the date they became subject to the Stock Ownership Guidelines and at least 75% of “net shares” delivered through the Company’sour director compensation programs. For this purpose, “net shares” means the number of shares obtained by exercising stock options or through the vesting of awards, less the number of shares the director sells or trades to pay for any exercise costs. If the director transfers an award to a family member who resides in the same household, the transferee will be subject to the same retention requirements and the shares will still be counted toward satisfaction of the ownership requirements.
The following table sets forth compensation information for all of our non-employee directors for the fiscal year ended December 31, 2019.
Director Compensation Table for 20162019
| Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2) (3) | All Other Compensation ($) (4) | Total ($) | Fees Earned or Paid in Cash (1) | Stock Awards (2)(3) | All Other Compensation (4) | Total | |
| Thomas J. Baltimore, Jr. | 87,500 | 90,000 | – | 177,500 | |||||
| John P. Case | $100,000 | $125,000 | – | $225,000 | |||||
| William Cavanaugh III | 112,500 | 90,000 | – | 202,500 | $97,500 | $125,000 | – | $222,500 | |
| Alan H. Cohen | 100,000 | 90,000 | – | 190,000 | $75,000 | $125,000 | – | $200,000 | |
| Ngaire E. Cuneo | 92,500 | 90,000 | – | 182,500 | $100,000 | $125,000 | – | $225,000 | |
| Charles R. Eitel | 87,500 | 90,000 | 1,000 | 178,500 | $100,000 | $125,000 | $1,000 | $226,000 | |
| Martin C. Jischke, Ph.D. | 65,000 | 90,000 | – | 155,000 | |||||
| Norman K. Jenkins | $100,000 | $125,000 | – | $225,000 | |||||
| Melanie R. Sabelhaus | 87,500 | 90,000 | 1,000 | 178,500 | $116,875 | $125,000 | $1,000 | $242,875 | |
| Peter M. Scott, III | 92,500 | 90,000 | – | 182,500 | $125,000 | $125,000 | – | $250,000 | |
| Jack R. Shaw | 112,500 | 90,000 | – | 202,500 | |||||
David P. Stockert(5) | $115,000 | $125,000 | $1,000 | $241,000 | |||||
| Chris T. Sultemeier | $100,000 | $125,000 | – | $225,000 | |||||
| Michael E. Szymanczyk | 98,750 | 90,000 | – | 188,750 | $121,875 | $125,000 | – | $246,875 | |
Warren M. Thompson(5) | $75,000 | $175,000 | - | $250,000 | |||||
| Lynn C. Thurber | 87,500 | 90,000 | 1,000 | 178,500 | $100,000 | $125,000 | $1,000 | $226,000 | |
| Robert J. Woodward Jr. | 78,125 | 90,000 | – | 168,125 | |||||
(1) | Because we pay director fees in arrears on a quarterly basis, a portion of the cash fees paid to directors in |
| Name | Total Number of Shares Received in Annual Cash Retainer | |
| William Cavanaugh III | ||
| Ngaire E. Cuneo | 3,306 | |
| Norman K. Jenkins | 3,306 | |
| David P. Stockert | 3,765 | |
| Michael E. Szymanczyk | 4,026 | |
| Lynn C. Thurber | 3,306 | |
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(2) | Represents the aggregate grant date fair value of stock awards we granted |
(3) | No options were granted to directors in |
| Name | Number of RSUs | |
| 6,289 | ||
| William Cavanaugh III | – | |
| Alan H. Cohen | – | |
| Ngaire E. Cuneo | 4,285 | |
| Charles R. Eitel | 4,285 | |
| Norman K. Jenkins | 4,285 | |
| Melanie R. Sabelhaus | 4,285 | |
| Peter M. Scott, III | 4,285 | |
| 4,285 | ||
| Chris T. Sultemeier | 6,289 | |
| Michael E. Szymanczyk | 4,285 | |
| Warren M. Thompson | 6,003 | |
| Lynn C. Thurber | 4,285 | |
(4) | Represents the amount of matching charitable contributions provided under the Duke Realty Matching Gifts program. |
(5) | Reflects changes in committee assignments or Chairperson position during 2019. |
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors, or theBoard’s Audit Committee is composed of fourthree directors, each of whom is independent under Securities and Exchange Commission, or SEC Rule 10A-3 and the listing standards of the New York Stock Exchange.NYSE. The duties and responsibilities of the Audit Committee are set forth in a written Audit Committee Charter which is available on the Investor Relations/Corporate Governance section of the Company’scompany’s website at http://www.dukerealty.com.The Board of Directors has determined that each of Ms. Cuneo, Mr. Scott, Mr. Shaw and Mr. Szymanczyk is an “audit committee financial expert” as defined by the rules of the SEC.
Management is responsible for the Company’scompany’s internal controls and financial reporting process andas well as compliance with laws and regulations and ethical business standards. KPMG LLP, or KPMG, the Company’scompany’s independent registered public accounting firm, is responsible for auditing the consolidated financial statements and expressing an opinion on the financial statements and the effectiveness of internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States)., or the PCAOB. The Audit Committee’s responsibility is to monitor and oversee these processes.
In connection with these responsibilities, the Audit Committee meets separately at most regular committee meetings with management, the Internal Audit Department, and KPMG. The Audit Committee met with management and KPMG to review and discuss the Company’s 2016company’s 2019 consolidated financial statements. The Audit Committee also discussed with KPMG the matters required by the applicable requirements of the PCAOB Auditing Standard No. 16 (Communication with Audit Committees). Managementand the SEC, and KPMG also made presentations to the Audit Committee throughout the year on specific topics of interest, including: (i) current developments and best practices for audit committees; (ii) updates on the substantive requirements of the Sarbanes-Oxley Act of 2002, including management’s responsibility for assessing the effectiveness of internal control over financial reporting; (iii) the Company’scompany’s critical accounting policies; (iv) the applicability of several new and proposed accounting releases; and (v) numerous SEC initiatives. The Audit Committee has received the written disclosures and the letter from KPMG in accordance with applicable requirements of the Public Company Accounting Oversight BoardPCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Audit Committee discussed with KPMG that firm’s independence. The Audit Committee pre-approved all audit, audit-related, and permitted non-audit services provided by KPMG to the Companycompany and the related fees for such services, and has concluded that such services are compatible with KPMG’s independence.
Based upon the Audit Committee’s discussions with management and KPMG, and the Audit Committee’s review of the representations of management and KPMG, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’scompany’s Annual Report on Form 10-K for the year ended December 31, 20162019, to be filed with the SEC.
Audit Committee
Ngaire E. Cuneo
Michael E. Szymanczyk
The information contained in the Audit Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, except to the extent that we specifically incorporate it by reference in such filing.
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
We incurred the following fees for services rendered by KPMG, the Company’sour independent registered public accountants, during 20162019 and 2015:2018:
Audit Fees: $1,354,220$1,721,000 for 20162019 and $1,290,960$1,402,000 for 2015.2018, which included fees for services associated with comfort letters and auditor consents totaling $425,000 and $330,000 respectively.
Audit-Related Fees: $43,00055,000 for 20162019 and $38,500$53,000 for 2015.2018. These fees include employeeprimarily relate to associate benefit plan audits and other accounting related consultation.audits.
Tax Fees: $169,8477,673 for 20162019 and $4,209$25,162 for 2015.2018. These fees includeare for services foron various tax consulting matters and for 2016, includes $148,338include an additional $15,000 in 2018 approved by the Audit Committee for a special project.Committee.
All Other Fees: None.
Audit Committee Pre-Approval Policies
The Audit Committee has adopted a policy that requires the pre-approval of all fees paid to KPMG for audit and non-audit services. Under thatthis policy, the committee pre-approved the following services, including the amount of fees payable for such services:
Any fees in excess of the pre-approved amounts, or any services not described above, require the pre-approval of the Audit Committee chairman,chairperson, with a review by the Audit Committee at its next scheduled meeting. All non-audit services provided by KPMG in 20152018 and 20162019 were approved in accordance with this pre-approval policy.
Audit Committee Review
The Company’s Audit Committee has reviewed the services rendered and the fees billed by KPMG for the fiscal year ended December 31, 2016.2019. The Audit Committee has determined that the services rendered and the fees billed last year that were not related directly to the audit of the Company’sour financial statements were compatible with the maintenance of independence of KPMG as the Company’sour independent registered public accountants.
REPORT OF THE EXECUTIVE COMPENSATION AND HUMAN CAPITAL COMMITTEE
Each member of our Executive Compensation and Human Capital Committee is independent, as determined by the Board of Directors and based on the NYSE listing standards. As membersMembers of the Executive Compensation and Human Capital Committee we have primary responsibility for setting the compensation of the Company’scompany’s senior executive officers in a manner that is effective and consistent with the compensation strategy for the Company.company. As part of that responsibility, we have reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based upon such reviews and discussions, we recommended that the Board of Directors include the Compensation Discussion and Analysis in this Proxy Statement.proxy statement.
Melanie R. Sabelhaus, Chairperson
Norman K. Jenkins
The information contained in the Report of the Executive Compensation and Human Capital Committee shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, except to the extent that we specifically incorporate it by reference in such filing.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Executive Compensation and Human Capital Committee consists of three independent directors: Mr. Cohen, Ms. Sabelhaus, Mr. Case, and Ms. Thurber. Mr. Jischke also served on the Executive Compensation Committee through April 27, 2016.Jenkins. No member of the Executive Compensation and Human Capital Committee is or was formerly an officer or an employeeassociate of the Company.company. No executive officer of the Companycompany serves as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company’s Board, of Directors, nor has such interlocking relationship existed in the past.
Corporate Responsibility
As part of our vision to continually set the standard for maximizing stakeholder value, we have a long standing commitment to sustainable practices in environmental, social, and corporate governance, or ESG, initiatives. Below, we note some of our accomplishments in each ESG category. At the end of 2019, we decided to strengthen our commitment by hiring a Vice President of Corporate Responsibility, whose sole responsibility will be to lead our efforts on all facets of ESG strategic initiatives and implementation of related strategies, policies, communications, and processes. We are proud of our ESG efforts, but recognize that we still have opportunities to do more. We believe our new Vice President of Corporate Responsibility will help us do just that.
Environmental
We have implemented sustainable and customer-oriented practices in development and operations to try to mitigate the impact to the environment and reduce overall corporate risk.
On December 17, 2019, we adopted a Sustainable Development Policy intended to increase the operational efficiency of our buildings and promote sustainable design principles. We are committed to integrating innovative, sustainable building design features in alignment with LEED®, including constructing to LEED criteria and achieving certification in all new developments where feasible. LEED®- an acronym for Leadership in Energy and Environmental Design™ - is a registered trademark of the U.S. Green Building Council®.
We also follow sustainable building standards for maintenance, renovations, and tenant improvement projects with an objective of providing operating cost savings for tenants as well as supporting tenant and landlord sustainability objectives.
For existing buildings, we look for ways to reduce energy, water, and waste consumption, including, for example, retrofitting older high energy consuming light fixtures to newer, more efficient LED lighting. While we do not control most of the utility usage at our properties, we partner with Goby, Inc. in order to help us monitor and manage the utility usage that we do control. Our partnership with Goby, Inc. is also instrumental in benchmarking buildings with EnergyStar when required by municipalities or other governmental regulation. In order to make this partnership more useful, we have updated our standard lease form to include language requiring tenants to provide us with their utility usage. With the help of the utility management platform and more data from tenants, we expect to establish realistic utility usage benchmarks and then find ways to work with tenants to help make energy, water, and waste efficiency decisions.
In 2019, we completed the GRESB Real Estate Assessment for the second time. GRESB is an industry leader in providing ESG benchmarks for real estate assets. By responding, we are able to assess and improve our ESG performance over time. In 2019, we increased our GRESB survey score from the previous year and we expect to continue participating in the survey.
We were the first of the industrial REITs to issue a “green bond” in the United States in November 2019. We plan to use the net proceeds from this green bond to finance future or refinance recently completed “Eligible Green Projects.” This may include green buildings, energy efficiency projects, sustainable water and wastewater management systems, renewable energy projects, clean transportation solutions and pollution prevention and control.
Social
We have numerous initiatives that demonstrate our care and concern for everyone with whom we interact, including the communities in which we do business.
| • | We are dedicated to fair compensation, fostering a dynamic and balanced work environment, and providing associates with developmental opportunities to perform well and derive satisfaction from their work. A testament to our culture is our average associate tenure of 12.5 years. We also routinely conduct associate engagement surveys and have received numerous awards for being a great place to work. Recently, the Best Companies Group in partnership with local business journals awarded us 1st place for the Best Places to |
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Work in Chicago, Illinois (medium company category); 2nd place for the Best Places to Work in Philadelphia, Pennsylvania (large company category); and 4th place for the Best Places to Work in Orange County, California (large company category).
Since 2001, we have had a diversity and inclusion program, pursuant to which we strive to attract and retain diverse talent, hire diverse vendors, and partner with our tenants on diversity initiatives. In 2019, NAREIT, the REIT industry trade group, recognized us as the Corporate Gold winner and Mr. Connor as the individual winner of its inaugural Dividends Through Diversity and Inclusion Recognition Awards program.
In 2019, we continued our support of the Duke Realty Women’s Network initiative, the goal of which is to create a network that supports the investment in, development, and growth of women at our company. The Duke Realty Women’s Network holds semi-annual panel discussions for all associates and organizes various networking events in the local offices.
| • | In addition, we promote all aspects of wellness for our associates-including physical, emotional, and financial health-through our wellness program, which includes group activities, online resources, and generous incentives. We have also won awards for our wellness program, including Finalist-4th Place in the Healthiest Employer of Indiana awards and the American Heart Association’s Workplace Health Achievement Gold Level Recognition. |
We encourage our associates to participate in volunteer and community activities and support those who do by providing each associate with two paid community days per year. We hold an annual company-wide Day of Service in which all associates are encouraged to volunteer in their local communities. We also have charitable contribution programs, such as our dollars for doers program (matching dollars for volunteer hours spent) and our matching gifts program (matching dollars for associate donations to charities).
We have partnered with the American Red Cross since 2017 to help prevent and alleviate human suffering in the face of emergencies. Each year, Duke Realty associates participate in various engagement opportunities from volunteering in the organization’s “Sound the Alarm” campaign, during which our associates helped local fire departments install smoke alarms, replace batteries in existing smoke alarms, and provide fire prevention and safety education, to assisting in the Missing Maps project, during which associates have helped put people from high risk countries on the map, organized blood drives in their communities, and built military kits to ship overseas. Currently, Duke Realty is an American Red Cross Disaster Responder member and recognized as one of the largest supporters nationwide.
Corporate Governance
Our reputation is one of our most important assets. Since our inception, we have insisted that our associates, officers, and directors conduct business in accordance with the highest ethical standards. We also strive to implement robust corporate governance practices, as they are critical to keeping us accountable and transparent.
We are devoted to ensuring that the Board has a strong oversight function, with a majority of independent directors and a Lead Director. We also conduct annual evaluations of our Board and its committees.
31% of our Board and our nominees to the Board are female. Our Compensation and Human Capital Committee is chaired by a woman. We also have a Board Diversity and Inclusion Policy.
The Board oversees our risk management processes, with our Internal Audit Department reporting directly to the Audit Committee. Please see “Board Oversight of Risk Management” for more information regarding the Board’s role in risk management.
We conduct annual Code of Business Ethics training sessions, and associates and directors must sign off on our Code of Business Ethics every year.
We have a Corporate Responsibility Committee that reports to the Board.
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We have adopted proxy access, shareholders can call special meetings and amend our bylaws, and we do not have a shareholder rights plan.
Through all of our ESG efforts, we demonstrate that operating and developing commercial real estate can be conducted with a conscious regard for the environment and the community, while also benefiting our shareholders, associates, tenants, and communities in which we operate.
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PROPOSAL TWO: ADVISORY VOTE TO APPROVE THE COMPENSATION OF NAMED EXECUTIVE OFFICERS
In accordance with the requirements of Section 14A of the Exchange Act and the related SEC rules, we are asking our shareholders to vote to approve, on an advisory (nonbinding) basis, the compensation of our named executive officers, as disclosed in this Proxy Statement.proxy statement.
As discussed in the Compensation Discussion and Analysis beginning on page 27,35, we have designed our executive compensation program to attract and retain the highest quality executive officers, directly link pay to our performance, and build value for our shareholders. Our program provides total compensation opportunities at levels that are competitive in our industry, ties a significant portion of each executive’s compensation to achieving our key business objectives, and closely aligns the interests of our executives with the interests of our shareholders. In sum, our compensation is designed to reward executives when the Company achieves strong financial and operational results, and likewise to provide reduced pay when financial and operating results are not as strong. We believe the 2016 compensation of our named executive officers is reflective of and consistent with that intent.
This proposal, commonly known as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers described in this Proxy Statement.proxy statement.
At the annual meeting of shareholders on April 27, 2016, over 95%24, 2019, more than 91% of the shares voted were voted in support of the 2015 compensation of our named executive officers, which wasas discussed and disclosed in the 20162019 proxy statement. The Executive Compensation and Human Capital Committee appreciates and values the views of our shareholders. In considering the results of last year’s advisory vote to approve executive compensation, the Executive Compensation and Human Capital Committee concluded that the compensation paid to our named executive officers and the Company’sour overall pay practices enjoy strong shareholder support. No significant changes were made to our executive compensation program for 20162019 as a result of the advisory vote.
The Board of Directors invites you to review carefully the Compensation Discussion and Analysis beginning on page 2735 and the tabulartables and other disclosures on compensation under Executive Compensation beginning on page 45,53, and encourages you to cast a vote to approve the Company’scompany’s executive compensation programs through the following resolution:
“Resolved, that shareholders approve the compensation of the Company’scompany’s named executive officers as discussed and disclosed in the Compensation Discussion and Analysis, the executive compensation tables, and any narrative executive compensation disclosure contained in this Proxy Statement.proxy statement.”
The say-on-pay vote is advisory and, therefore, not binding on the Company,company, the Executive Compensation and Human Capital Committee, or the Board of Directors.Board. The shareholders’ advisory vote will not overrule any decision made by the Board of Directors or the Executive Compensation and Human Capital Committee or create or imply any additional fiduciary duty by our directors. However, if there is a significant vote against the named executive officer compensation as disclosed in this Proxy Statement,proxy statement, we will consider our shareholders’ concerns and the Executive Compensation and Human Capital Committee will evaluate whether any actions are necessaryneeded to address those concerns. Currently say-on-paySay-on-pay votes currently are held by the Companycompany annually, and we expect the next say-on-pay vote after this Annual Meeting to occur at the 20182021 annual meeting of shareholders, although such timing may change depending on the outcome of the vote on Proposal Three.shareholders.
The proposal to approve, on an advisory basis, the compensation of the Company’sour named executive officers will be approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Abstentions and broker non-votes will not be treated as votes cast and therefore will not affect the outcome.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF PROPOSAL TWO.
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
In the paragraphs that follow, we provide an overview and analysis of our compensation program and policies, the material compensation decisions we havethe Compensation and Human Capital Committee has made under those programs and policies with respect to our top executive officers, and the material factors that wethe Compensation and Human Capital Committee has considered in making those decisions. Following thisthe Compensation Discussion and Analysis or CD&A,(CD&A), under the heading “Executive Compensation,” is a series of tables containing specific data about the compensation earned in 20162019 by the following individuals, whom we refer to as our named executive officers:
our former Executive Chairman Mr. Dennis D. Oklak, who stepped down from that position on January 6, 2017, and is currently serving as the non-executive Chairman of the Board of Directors;
our Executive Vice President and Chief Financial Officer, Mr. Mark A. Denien;
our Executive Vice President and Chief Operating Officer, Mr. Steven W. Schnur.
our Executive Vice President, Chief Investment Officer, Mr. Nicholas C. Anthony; and
our Executive Vice President, General Counsel and Corporate Secretary, Ms. Ann C. Dee;
2019 was another excellent year for Duke Realty Corporation is a U.S.Realty. We improved in nearly every key operating metric, including same-property net operating income growth, rent growth, and development starts compared to what was an already very impressive 2018, and further strengthened our already sound balance sheet.
At December 31, 2019, we owned or jointly controlled 519 primarily industrial properties, REIT providing supply chain real estate solutions with an incremental focus on medical office real estate. As of December 31, 2016, our diversified portfolio of industrial and medical office properties included 540 rental and development properties, including jointly controlled properties, encompassing 137.5which encompassed 155.3 million rentable square feet (including 38 unconsolidated joint venture in-service properties with 11.0 million square feet, 21 consolidated properties under development with 8.7 million square feet and isone unconsolidated joint venture property under development with 133,000 square feet). Our properties are leased by a diverse base of approximately 1,400more than 800 tenants whose businesses include e-commerce, manufacturing, retailing, wholesale trade, distribution, healthcare and professional services. As a fully integrated commercial real estate firm, we provide in-house leasing, management, development and construction services.distribution. We also own, directly andowned, including through ownership interests in unconsolidated joint ventures approximately 2,200(with acreage not adjusted for our percentage ownership interest), 1,380 acres of land and controlcontrolled an additional 1,6001,000 acres through purchase options.
In addition to portfolio repositioning, we continued to execute on our overall financial position.operational and capital strategies in 2019. Highlights include:
In 2019, earnings per diluted share increased by 10% from 2018, primarily due to higher gains on sales of properties. Earnings per diluted share from continuing operations increased by 11% from 2018. In 2019, we achieved an increase of over 10% in Adjusted Funds from Operations (AFFO) and over 8% in Core Funds from Operations (Core FFO). AFFO and Core FFO are not generally accepted accounting principles (GAAP) metrics. See Appendix A for a discussion and reconciliation to the most directly comparable GAAP measures.
Our operational focusaverage total in-service occupancy for 2016the year was 96.0%. Even with the high occupancy level in our stabilized portfolio, we have ample opportunity to grow adjusted funds from operations, or AFFO, through (1) increasing property occupancyearnings and lease additional space in our unstabilized portfolio.
We recorded a 28.6% increase in GAAP rental rates for 2019, which contributed to achieve strong growth in same propertysame-property net operating income; (2) managing capital expenditures on second generation leases; and (3) providing a full line of real estate services to our tenants and to third parties.
We were the first of the industrial REITs to issue a “green bond” in the United States in November 2019. Please see “Corporate Responsibility—Environmental” for more information on this “green bond” issuance.
Fiscal Year 2016 Performance Measures and Results | Fiscal Year 2016 Award Payouts/Vesting | |||||||||||||||||||||
| Annual Incentive Awards | ||||||||||||||||||||||
| Corporate Goals | ||||||||||||||||||||||
| Annual cash incentive awards for all executives had the following corporate goals: AFFO/share, average in-service lease up occupancy, and same-property net operating income (industrial and MOB only). Awards for Messrs. Connor and Denien also included a corporate goal relating to Fixed Charge Coverage Ratio (Trailing 12 months). | The table below summarizes the overall bonus payouts which were based on the corporate, division (as applicable) and individual goals and weightings for each executive. | |||||||||||||||||||||
| Threshold (50%) | Target (100%) | Stretch (150%) | Superior (200%) | Actual | ||||||||||||||||||
AFFO/Share | $1.02 | $1.05 | $1.08 | $1.10 | $1.06 | NEO | % of Target Earned | Annual Incentive Payout | ||||||||||||||
| Average In-Service Lease Up Occupancy | 94.7 | % | 95.9 | % | 96.7 | % | 97.0 | % | 96.5 | % | Oklak | 144.4 | % | $649,800 | ||||||||
| Same-Property Net Operating Income | 2.0 | % | 3.5 | % | 4.7 | % | 5.5 | % | 6.0 | % | Connor | 152.3 | % | $1,138,070 | ||||||||
| Fixed Charge Coverage Ratio | 2.9x | 3.2x | 3.4x | 3.6x | 3.6x | Denien | 152.3 | % | $770,390 | |||||||||||||
| Division Goals | Dee | 141.2 | % | $523,150 | ||||||||||||||||||
Awards for Messrs. Harrington and Kennedy included the following financial and operational goals related to our Construction Division, plus various other metrics relating to project execution, overhead expenses, and diversity and inclusion. | Harrington | 131.6 | % | $335,580 | ||||||||||||||||||
| (Dollar figures are in millions.) | Threshold (50%) | Target (100%) | Stretch (150%) | Superior (200%) | Actual | Due to Mr. Kennedy's departure in June 2016, he was not eligible to receive an annual bonus for 2016. | ||||||||||||||||
| Construction Volume | $481.7 | $688.1 | $757.0 | $825.8 | $553.8 | |||||||||||||||||
| Construction Starts | $437.5 | $625 | $687.5 | $750 | $807.9 | |||||||||||||||||
| Third-Party Fee Variance | (10 | )% | 0% | 25 | % | 50 | % | 80.4 | % | |||||||||||||
| Development Cost Variance | 4 | % | 2 | % | 1.5 | % | 1 | % | 1.67 | % | ||||||||||||
| Individual Goals | ||||||||||||||||||||||
| Awards for all executives included subjective, non-formulaic individual performance goals. | ||||||||||||||||||||||
| 2016-2018 Performance Share Plan Awards (“PSP Awards”) | ||||||||||||||||||||||
| PSP awards vest after three years, if and to the extent performance goals are met, and have three performance components: average annual growth in AFFO/Share, leverage metric (split between fixed charge coverage ratio and debt plus preferred to EBITDA ratio, each based on trailing 12 months of 2018), and relative total shareholder return, based on a peer group of selected REITs. Named executive officers have the opportunity to elect to receive LTIP Units with the same vesting schedule in lieu of PSP awards. | The performance goals and resulting payout for the PSP Awards relating to fiscal years 2014-2016 are described on pages 40 and 41. | |||||||||||||||||||||
Threshold (50%) | Target (100%) | Superior (200%) | ||||||||||||||||||||
| Average Annual Growth in AFFO/Share | 0% | 3% | 5 | % | ||||||||||||||||||
| Leverage Metric: | ||||||||||||||||||||||
| Fixed Charge Coverage Ratio | 2.7x | 3.2x | 3.5x | |||||||||||||||||||
| Debt Plus Preferred to EBITDA Ratio | 7.0 | 6.5 | 6.0 | |||||||||||||||||||
| Threshold (50%) | Target (100%) | Stretch (150%) | Superior (200%) | |||||||||||||||||||
| Relative TSR (percentile) | ≥30 and <40 | ≥40 and <60 | ≥60 and <80 | ≥80 | ||||||||||||||||||
Restricted Stock Units (RSUs) RSUs granted in 2016 vest in equal amounts on the first three anniversaries of the grant date, provided that the named executive officer remains employed on each such vesting date. Named executive officers have the opportunity to elect to receive LTIP Units with the same vesting schedule in lieu of RSUs. | ||||||||||||||||||||||
Our operational and strategic success has translated into strong returns to our shareholders. Our total shareholder return was 46.4% and 107.7% over the past three and five fiscal years, respectively. This is particularly favorable when compared to total shareholder returns of 26.2% and 40.5% for the MSCI US REIT Index over the same time periods. We increased our quarterly dividend from $0.215 per share for the first three quarters of 2019 to $0.235 per share for the fourth quarter of 2019, representing a 9.3% increase. We expect to continue to distribute an amount at least equal to our taxable earnings, to meet the requirements to maintain our REIT status, and additional amounts as determined by our Board. Distributions are declared at the discretion of our Board and are subject to actual cash available for distribution, our financial condition, capital requirements, and such other factors as our Board deems relevant.
Fiscal 2019 Pay and Performance Alignment
Fiscal Year 2019 Performance Measures and Results | Fiscal Year 2019 Award Payouts/Vesting | ||||||||||||||||
| Annual Incentive Awards | |||||||||||||||||
| Corporate Goals (all named executive officers) | |||||||||||||||||
| Annual cash incentive awards for all executives had the following corporate goals: AFFO/share, Core FFO/share, and average total in-service lease up occupancy. | The table below summarizes the overall bonus payouts which were based on the corporate, division (as applicable) and individual goals and weightings for each named executive officer. | ||||||||||||||||
Threshold (50%) | Target (100%) | Stretch (150%) | Superior (200%) | Actual | |||||||||||||
| AFFO/Share | $1.23 | $1.27 | $1.29 | $1.32 | $1.30 | NEO | % of Target Earned | Annual Incentive Payout | |||||||||
| Core FFO/Share | $1.34 | $1.40 | $1.43 | $1.47 | $1.44 | Connor | 153.80% | $2,164,800 | |||||||||
| Average Total In-Service Lease Up Occupancy | 94.00% | 95.50% | 96.20% | 97.00% | 96.00% | Denien | 153.80% | $1,076,250 | |||||||||
| Schnur | 153.70% | $969,360 | |||||||||||||||
| Division Goals (Mr. Anthony) | Anthony | 155.40% | $922,810 | ||||||||||||||
| The award for Mr. Anthony also included the following goals related to our Capital Transactions and Joint Venture Division. | Dee | 153.70% | $804,480 | ||||||||||||||
| (Dollar figures are in millions) | Threshold (50%) | Target (100%) | Stretch (150%) | Superior (200%) | Actual | ||||||||||||
Acquisitions Volume(1) | $133.3 | $200.0 | $233.3 | $300.0 | $215.7 | ||||||||||||
Acquisitions Yield(2) | 4.00% | 4.25% | 4.40% | 4.60% | 4.66% | ||||||||||||
Dispositions Volume(1) | $326.2 | $434.9 | $489.3 | $598.0 | $498.5 | ||||||||||||
Dispositions Yield(3) | 6.25% | 6.00% | 5.60% | 5.40% | 5.64% | ||||||||||||
(1) Based on ownership share. | |||||||||||||||||
(2) Stabilized capitalization rate | |||||||||||||||||
(3) In-place capitalization rate | |||||||||||||||||
| Individual Goals (all named executive officers) | |||||||||||||||||
| Awards for all executives included subjective, non-formulaic individual performance goals. | |||||||||||||||||
| 2019-2021 Performance Share Plan Awards (PSP awards) | |||||||||||||||||
| PSP awards vest after three years, if and to the extent performance goals are met, and have two performance components: average annual growth in AFFO/Share and relative total shareholder return, based on a peer group of selected REITs and certain indices. Named executive officers have the opportunity to elect to receive Long-Term Incentive Plan, or LTIP, units with the same vesting schedule in lieu of PSP awards. | The performance goals and resulting payout for the PSP awards relating to fiscal years 2017-2019 are described on pages 49-50. | ||||||||||||||||
Threshold (50%) | Target (100%) | Superior (200%) | |||||||||||||||
| Average Annual Growth in AFFO/Share | 0.00% | 3.00% | 5.00% or above | ||||||||||||||
Threshold (50%) | Target (100%) | Superior (200%) | Outperformance (250%) | ||||||||||||||
| Annualized Relative TSR (Total Shareholder Return) Percentile Rank | 25 | 50 | 75 | ≥75 & ≥15.00% Absolute TSR | |||||||||||||
Restricted Stock Units (RSUs) RSUs granted in 2019 vest in equal amounts on the first three anniversaries of the grant date, provided that the named executive officer remains employed on each such vesting date. Named executive officers have the opportunity to elect to receive LTIP Units with the same vesting schedule in lieu of RSUs. | |||||||||||||||||
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Our Executive Compensation Practices
The Compensation and Human Capital Committee is mindful of evolving practices in executive compensation and corporate governance. The following table highlights our current executive compensation practices – both the practices we believe drive performance and mitigate risk and the practices we have not implemented or eliminated because we do not believe they would serve our shareholders’ long-term interests.
| Executive Compensation Practices We Have Implemented: |
(3) fixed and variable pay |
| Executive Compensation Practices We Have Not Implemented: |
Consideration of Most Recent Say on PaySay-on-Pay Vote
The Compensation and Human Capital Committee recognizes that executive pay practices and views of sound governance principles continue to evolve. Consequently, the Compensation and Human Capital Committee intends to continue paying close attention to the advice and counsel of its independent compensation adviser and invites our shareholders to communicate any concerns or opinions on executive pay directly to the Compensation and Human Capital Committee or the Board. Please refer to “Information about Communications with Duke Realty Corporation and Our Board of Directors”Board” on pages 5 andpage 6 for information about communicating with the Board.
At the annual meeting of shareholders on April 27, 2016, over 95%24, 2019, more than 91% of the shares voted were voted in support of the 2015 compensation of our named executive officers, as discussed and disclosed in the 20162019 proxy statement. In consideringBased on the results of this most recent advisory vote to approve the compensation of our named executive officers, the Compensation and Human Capital Committee concluded that the compensation paid to our named executive officers and the Company’scompany’s overall pay practices enjoy strong shareholder support. No significant changes were made to our executive compensation program for 20162019 as a result of the advisory vote.
At the annual meeting of shareholders on April 26, 2017, our shareholders expressed a preference that advisory votes on executive compensation occur every year. Consistent with this preference, the Board has implemented an advisory vote to approve executive compensation every year until the next required vote on the frequency of shareholder votes on the compensation of executives, which is expected to occur at the 2023 annual meeting.
Overview of Executive Compensation Philosophy and Objectives
We have designed our executive compensation program, under the direction of the Compensation and Human Capital Committee, to attract and retain the highest quality executive officers, directly link pay to our performance, and build value for our shareholders. In order to do this effectively, our program is designed to:
provide total compensation opportunities with a combination of compensation elements that are competitive,competitive;
tie a significant portion of each executive’s compensation to achieving our key business objectives,objectives; and
align shareholder interests and executive rewards by tying a significant portion of each executive’s compensation opportunity to pay for performance standards designed to increase long-term shareholder value.
Determining Individual Compensation Levels and Pay Mix
When setting compensation, the Compensation and Human Capital Committee seeks to achieve optimal balance between:
fixed and variable pay;
short-term and long-term pay;incentives; and
cash and equity.
We believe that a significant percentage of our executives’ compensation should be at risk and subject to performance. In addition, we attempt to balance the shortshort- and long-term focus of our executives and to align their interests with our shareholders by providing a meaningful portion of their compensation in the form of equity-based awards.
Our executive compensation program includes the following elements:
| Compensation Element | Overview/Objectives | |
| Base Salary | • | Fixed portion of an executive’s annual compensation that is intended to recognize fundamental market value for the individual’s skills and experience |
| Annual Cash Incentive | • | Annual cash incentives vary based on performance against pre-defined goals and are intended to reward |
| Long-term Incentive Awards (restricted stock units and | • | Stock-based incentives vary based on stock price and, in the case of |
The following charts below show the allocations of the fiscal year 20162019 target total direct compensation for our CEO and the fiscal year 20162019 average target total direct compensation for our other named executive officers, respectively. Base salary is the only fixed element of compensation, with the remainder being at risk. Base salarysalaries and annual bonusbonuses are paid in cash, while 100% of the long-term incentive opportunityopportunities (RSUs and performance shares) isPSP awards) are paid in stock.stock, or partnership units, at the executive’s election.
Fiscal 20162019 Targeted Total Direct Compensation (1)
How We Make Compensation Decisions
The Compensation and Human Capital Committee has primary responsibility for determining the Company’sour compensation strategy and setting the compensation of the Company’sour senior executive officers. Information about the CommitteeCompensation and its composition and responsibilitiesHuman Capital Committee can be found on page 1421 of thethis proxy statement, under the caption “Board Committees—Executive Compensation Committee.Committees.” To assist in evaluating the compensation practices at the Company,company, the Compensation and Human Capital Committee engaged Frederic W. Cook & Co., Inc. (FW Cook), or FW Cook, as its independent executive compensation consultantadviser in 2016.2019. FW Cook reports directly to the Compensation and Human Capital Committee and provides no other services to the Company.company. The following table outlines the roles and responsibilities of the various parties in determining executive compensation.
| Roles and Responsibilities | ||||
| The Compensation and Human Capital Committee | • | Determines | ||
| • | Oversees design, implementation, and administration of | |||
| • | Approves incentive programs and sets performance goals for executive officers. | |||
| • | Reviews the performance of the CEO. | |||
| • | Determines appropriate levels of compensation for our executive officers, including the CEO, by assessing their individual performance | |||
| FW Cook | • | Provides advice, research, and analytical services on a variety of subjects, including compensation philosophy, trends, and best practices, peer group selection, target competitive positioning, pay mix, and incentive program design. | ||
| CEO | • | Develops an assessment of individual performance for each of his direct reports. | ||
| • | Provides recommendations to the Compensation and Human Capital Committee regarding individual compensation levels for such executives. | |||
| • | Provides recommendations to the Compensation and Human Capital Committee regarding metrics and goal levels for incentive plans for | |||
| Other Members of Management | • | Our | ||
| • | Our Chief Financial Officer provides the Compensation and Human Capital Committee with reports on financial performance as it relates to key business drivers and performance measures included in incentive program designs. | |||
Assessing the Competitive Marketplace
•Alexandria Real Estate Equities, Inc. | •Federal Realty Investment Trust | •Liberty Property Trust | |
•Apartment Investment and Management Company | • Healthpeak Properties, Inc. | •The Macerich Company | |
•Host Hotels & Resorts, Inc. | •Mid-America Apartment Communities, Inc. | ||
•Douglas Emmett, Inc. | •Kilroy Realty Corporation | •Regency Centers Corporation | |
•Extra Storage Space, Inc. | •Kimco Realty Corporation | ||
How the Compensation and Human Capital Committee Uses Peer Group Data
The Compensation and Human Capital Committee’s objective related to executive compensation is to provide a range of compensation opportunities with a combination of elements that are generallycompetitive relative to similarly-situated executives at competitive median opportunities.other companies and internally. To do this,assess external competitiveness, the Compensation and Human Capital Committee reviews the median compensation levels from the REIT compensation peer group companies for each component of pay, including base salary, target annual incentive bonus, target total cash compensation (which includes both base salary and target annual incentive bonus), target long-term compensation,incentives, and target total direct compensation (which includes base salary, target annual incentive bonus, and the target value of long-term incentives) for each executive officer position at the Company.position. In setting individual executive target total direct compensation opportunities for 2016 within2019, the range of these parameters, theCompensation and Human Capital Committee examined each component of pay on both a stand-alone basis and as a total. Decisions were based on the Committee'sCompensation and Human Capital Committee’s business judgment, informed by the comparative data, professional advice, and other considerations, including each executive’s experience level and job performance; his or her duties and responsibilities at the Companycompany compared to the duties and responsibilities of executive officers in similar positions at REIT compensation peer group companies; the Company’scompany’s performance; internal pay equity; and other circumstances unique to the Company.company.
Analysis of 20162019 Compensation Decisions
Base Salaries
Base salaries paid to the Company’sour executive officers are the fixed portion of annual compensation and are intended to recognize the fundamental skills and experience of our executive officers. The Compensation and Human Capital Committee considers the executive’s performance, role, and responsibilities,responsibilities; internal equity considerations,considerations; and external competitive compensation data when determining the base salary for each executive officer. Mr. Oklak’s base salary decreased by $370,000 to $450,000 at the beginning of 2016 to reflect his transition from Chairman and CEO to Executive Chairman. Mr. Connor’s base salary increased by $175,000 to $650,000 at the beginning of 2016 to reflect his promotion from Chief Operating Officer to President and Chief Executive Officer. Base salaries for othereach of the named executive officers were increased at the beginning of 20162019 to recognize performance and bring salaries more in line with competitive benchmarks as follows:
| Name | 2018 | 2019 | |
| James B. Connor | $850,000 | $880,000 | |
| Mark A. Denien | $540,000 | $560,000 | |
| Steven W. Schnur | $440,000 | $460,000 | |
| Nicholas C. Anthony | $460,000 | $475,000 | |
| Ann C. Dee | $440,000 | $455,000 | |
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Mr. Denien’s base salary increased by $30,000 to $460,000, Ms. Dee's base salary increased by $15,000 to $390,000, Mr. Kennedy's base salary increased by $10,000 to $368,000, and Mr. Harrington's base salary increased by $15,000 to $285,000. Mr. Harrington's base salarySchnur was increased again by $15,000 to $300,000later promoted on June 1, 2016 to reflect his promotionSeptember 2, 2019 to Executive Vice President, Construction.Chief Operating Officer with a new base salary of $485,000.
Annual Cash Incentives
Each named executive officer has a target annual bonus potential, expressed as a percentage of base salary, that is based on his or her role and responsibilities, internal equity considerations, and external competitive compensation data as reviewed from time to time.data. Annual bonuses are paid in cash in February for the prior year’s performance, and are
based uponon the Compensation and Human Capital Committee’s assessment of the Company’sour overall performance against goals and each executive’s individual (and, if applicable, division) performance against goals approved by the Compensation and Human Capital Committee.
The following table shows the target annual cash incentive for 20162019 for each of our named executive officers and the actual award earned, in each case expressed as a percentage of base salary:
| Name | Target Annual Bonus (as a % of Salary) | Actual Annual Bonus (as a % of Salary) | Target Annual Bonus (as a % of Salary) | Actual Annual Bonus (as a % of Salary) | |
| Dennis D. Oklak | 100% | 144.4% | |||
| James B. Connor | 115% | 175.1% | 160% | 246% | |
| Mark A. Denien | 110% | 167.5% | 125% | 192% | |
| Steven W. Schnur | 130% | 200% | |||
| Nicholas C. Anthony | 125% | 194% | |||
| Ann C. Dee | 95% | 134.1% | 115% | 177% | |
| Peter D. Harrington | 85% | 111.9% | |||
| Steven R. Kennedy | 105% | N/A | |||
