Robert S. Rollo (Independent Presiding Director for 2017)1 | | 70 | | | | Retired Senior Partner of Heidrick and Struggles DIRECTOR QUALIFICATION HIGHLIGHTS
| | | | 2013 | | | | Nominating/ Corporate Governance (Chair) and Compensation | ● Extensive knowledge and expertise in executive recruitment, compensation and talent management
● Experience in corporate governance
| | | | | | | | | | | Joseph D. Russell, Jr. | | 58 | | | | President of Public Storage | | | | 2003 | | | | Capital | | | | | | | | | | Peter Schultz (Independent Presiding Director for 2018) 1 | | 70 | | | | Retired Chief Executive Officer of The Beacon Group, Inc. | | | | 2012 | | | | Capital (Chair) and Audit | |
| 1 | Please see “Corporate Governance and Board Matters – Independent Presiding Director” on page 17. |
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Proposal 1 Ronald L. Havner, Jr., 60 Director since 1998 Chairman and Chief Executive Officer of Public Storage DIRECTOR QUALIFICATION HIGHLIGHTS: | ● | | Extensive leadership experience |
Mr. Rollo
| ● | | Extensive Company and industry knowledge |
Mr. Havner has been Chairman of the Board of PS Business Parks since March 1998 and previously served as the Company’s Chief Executive Officer. Mr. Havner has been Chief Executive Officer of Public Storage since November 2002. Mr. Havner also serves as a director of AvalonBay Communities, Inc. (NYSE: AVB) and will serve as director of California Resources Corp. (NYSE: CRC) through the end of his current term on May 10, 2018. Mr. Havner was the 2014 Chairman of the Board of Governors of the National Association of Real Estate Investment Trusts, Inc. (NAREIT). Mr. Havner’s qualifications for election to the PS Business Parks Board include his extensive leadership experience and Company and industry knowledge as the Company’s previous Chief Executive Officer. In considering the nomination of Mr. Havner forre-election to the Board, the Nominating/Corporate Governance Committee and the Board considered each of the qualifications above, including Mr. Havner’s experience in having served as our Chairman since 1998, and as our former Chief Executive Officer. Maria R. Hawthorne, 58 Director since 2016 President and Chief Executive Officer of PS Business Parks DIRECTOR QUALIFICATION HIGHLIGHTS: | ● | | Extensive Company knowledge |
| ● | | Extensive operational and leadership experience |
Ms. Hawthorne has served as Chief Executive Officer and President of the Company since July 2016 and August 2015, respectively. In addition, since August 2017, Ms. Hawthorne has also served in a dual capacity as the Company’s acting Chief Financial Officer (CFO) and will continue to so serve until a new CFO is retained. Ms. Hawthorne was also elected as a member of our Board in July 2016. Ms. Hawthorne most recently served as Executive Vice President, Chief Administrative Officer of the Company from July 2013 to August 2015. Prior to that, Ms. Hawthorne served as the Company’s Executive Vice President, East Coast from February 2011 to July 2013. Ms. Hawthorne served as the Company’s Senior Vice President from March 2004 to February 2011, with responsibility for property operations on the East Coast, which included Northern Virginia, Maryland and South Florida. From June 2001 through March 2004, Ms. Hawthorne was a Vice President of the Company, responsible for property operations in Virginia. From July 1994 to June 2001, Ms. Hawthorne was a Regional Manager of the Company in Virginia. From August 1988 to July 1994, Ms. Hawthorne was a General Manager, Leasing Director and Property Manager for American Office Park Properties. Ms. Hawthorne earned a Bachelor of Arts Degree in International Relations from Pomona College. Ms. Hawthorne’s qualifications for election to the PS Business Parks Board include her leadership experience and Company knowledge. As the only director who is also a member of the PS Business Parks executive management team, Ms. Hawthorne provides management’s perspective in Board discussions about the operations and strategic direction of the Company. PS Business Parks • 2018 Proxy Statement • 12
Proposal 1 Jennifer Holden Dunbar, 55 Director since 2009 Audit Committee, Capital Committee, Compensation Committee Co-Founder and Managing Director of Dunbar Partners, LLC DIRECTOR QUALIFICATION HIGHLIGHTS: | ● | | Extensive financial expertise |
| ● | | Experience in private equity, investments and M&A |
Ms. Dunbar has been a director of PS Business Parks since February 2009. From 1994 to 1998, Ms. Dunbar was a partner with Leonard Green and Partners, L.P., a private equity firm she first joined in 1989. Ms. Dunbar has served asCo-Founder and Managing Director of Dunbar Partners, LLC, an investment and advisory services firm, since March 2005. Ms. Dunbar is also a director of Big 5 Sporting Goods Corporation (NASDAQ: BGFV), where she serves on the audit and compensation committees and chairs the nominating and corporate governance committee. Ms. Dunbar has served on the board of trustees of various funds in the PIMCO Funds complex since April 2015 (overseeing 141 fixed income funds as ofyear-end 2017) and February 2016 (21 equity funds as ofyear-end 2017), respectively, where she is a member of the audit, governance and valuation oversight committee of each board. Ms. Dunbar is also the chair of the governance committee andco-chair of the valuation oversight committee of the board that oversees the PIMCO equity trusts. Each of the PIMCO entities is a registered investment company under the Investment Company Act of 1940, as amended. Ms. Dunbar’s qualifications for election to the PS Business Parks Board include her financial expertise, her experience in private equity and her experience with investments and mergers and acquisitions. She also has valuable experience as a member of several public company boards. James H. Kropp, 69 Director since 1998 Compensation Committee (Chair) Nominating/Corporate Governance Committee Chief Investment Officer at SLKW Investments LLC and Chief Financial Officer of Microproperties LLC DIRECTOR QUALIFICATION HIGHLIGHTS: | ● | | Extensive knowledge of investment banking |
| ● | | Specialization in real estate securities and experience with real estate businesses |
Mr. Kropp has been a director of PS Business Parks since March 1998. Mr. Kropp has served as Chief Investment Officer at SLKW Investments LLC since 2009 and as Chief Financial Officer of Microproperties LLC, an owner and asset manager of net leased restaurant properties, since August 2012. Mr. Kropp served as interim Chief Financial Officer of TaxEase LLC from 2009 to February 2013 and is currently a Board Leadership Fellow for the National Association of Corporate Directors. Mr. Kropp also currently serves as a director of Corporate Capital Trust, Inc. and Corporate Capital Trust II, registered investment companies, and American Homes 4 Rent LLC (NYSE: AMH), a leader in the home rental market. Mr. Kropp’s qualifications for election to the PS Business Parks Board include his knowledge of investment banking and capital markets with a specialization in real estate securities, and his extensive experience with real estate businesses, including other REITs. He also has valuable experience as a member of several public company boards. PS Business Parks • 2018 Proxy Statement • 13
Proposal 1 Sara Grootwassink Lewis, 50 Director since 2010 Audit Committee (Chair) Nominating/Corporate Governance Committee Capital Committee Chief Executive Officer of Lewis Corporate Advisors, LLC DIRECTOR QUALIFICATION HIGHLIGHTS: | ● | | Executive and financial experience at other REITs |
| ● | | Extensive experience as a director of PS Business Parks since October 2013. He most recentlyChartered Financial Analyst and Certified Public Accountant |
Ms. Lewis has been a director of PS Business Parks since February 2010. She is Chief Executive Officer of Lewis Corporate Advisors, a capital markets advisory firm. From May 2002 through February 2009, Ms. Lewis served as Executive Vice President and Chief Financial Officer of Washington Real Estate Investment Trust (NYSE: WRE), which owns and operates a diversified group of properties in the Washington, D.C. area. Ms. Lewis also currently serves on the boards of Sun Life Financial (NYSE: SLF) and Weyerhaeuser (NYSE: WY), following its acquisition of Plum Creek Timber, where she served on the board from 2013 to 2016. Ms. Lewis previously served on the board of directors of CapitalSource from 2004 until its merger in 2014, and the board of directors of Adamas Pharmaceuticals (NASDAQ: ADMS) from 2014 to 2016. Ms. Lewis is a member of the board of trustees of the Brookings Institution and a former Standing Advisory Group member of the Public Company Accounting Oversight Board (PCAOB). Ms. Lewis is also a United States Chamber of Commerce Center for Capital Markets Competitiveness Leadership Board Member. Ms. Lewis’ qualifications for election to the PS Business Parks Board include her previous executive and financial experience at three other publicly traded REITs and her background as a Chartered Financial Analyst and Certified Public Accountant. She brings her extensive financial and real estate industry knowledge to the Board as well as her public company board experience. Gary E. Pruitt, 68 Director since 2012 Audit Committee Retired Chairman and Chief Executive Officer of Univar N.V. DIRECTOR QUALIFICATION HIGHLIGHTS: | ● | | Extensive leadership and financial experience |
| ● | | Experience as a Senior Partner at Heidrick and Struggles (Heidrick) in Los Angeles from 2006 until his retirement in 2012. Heidrick is a leading international leadership advisory and executive search firm. Mr. Rollo is a past trustee of the University of Southern California and is Chairman Emeritus of the Southern California Chapter of the National Association of Corporate Directors.Public Storage |
Mr. Pruitt has served as a director of PS Business Parks since February 2012. He served as Chairman and Chief Executive Officer of Univar N.V. (Univar) from 2002 until his retirement as Chief Executive Officer in 2010 and as Chairman in 2011. Univar is a chemical distribution company based in Bellevue, Washington, with distribution centers in the United States, Canada and Europe. Mr. Pruitt is also a trustee of Public Storage, a director of Itron, Inc. (NASDAQ: ITRI), and a former director of Esterline Technologies Corp. (NYSE: ESL). Mr. Pruitt’s qualifications for election to the PS Business Parks Board include his leadership and financial experience as Chairman and Chief Executive Officer at Univar and his membership on the board of trustees of Public Storage. PS Business Parks • 2018 Proxy Statement • 14
Proposal 1 Robert S. Rollo, 70 Director since 2013 Nominating/Corporate Governance Committee (Chair) Compensation Committee Retired Senior Partner of Heidrick and Struggles DIRECTOR QUALIFICATION HIGHLIGHTS: Mr. Rollo’s qualifications for election to the PS Business Parks Board include his extensive
| ● | | Extensive knowledge of and expertise in executive recruitment, compensation and development and talent management along with his experience |
| ● | | Experience in corporate governance.PS Business Parks • 2016 Proxy Statement • 10
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Peter Schultz, 68
Director since 2012
Audit Committee
Retired Chief Executive Officer and Director of The Beacon Group, Inc.
DIRECTOR QUALIFICATION HIGHLIGHTSgovernance
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Mr. Rollo has served as a director of PS Business Parks since October 2013. Mr. Rollo most recently served as a Senior Partner at Heidrick and Struggles (Heidrick) in Los Angeles from 2006 until his retirement in 2012. Heidrick is a leading international leadership advisory and executive search firm. Mr. Rollo is a past trustee of the University of Southern California and is Chairman Emeritus of the Southern California Chapter of the National Association of Corporate Directors. Mr. Rollo’s qualifications for election to the PS Business Parks Board include his extensive knowledge of and expertise in executive recruitment, compensation and development and talent management, along with his experience in corporate governance. Joseph D. Russell, Jr., 58 | ● Leadership and senior management experience
● Extensive knowledge of the real estate industry
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Mr. Schultz has served as a director of PS Business Parks since February 2012. He served as President, Chief Executive Officer and a director of The Beacon Group, Inc. (Beacon) and its affiliates for more than 25 years until his retirement in 2010. Beacon, based in Southern California, and its affiliates, are engaged in the development and management of more than three million square feet of retail, industrial, hospitality and residential projects.
Mr. Schultz’s qualifications for election to the PS Business Parks Board include his leadership and extensive real estate experience as President, Chief Executive Officer and director of Beacon and its affiliates.
The following biography is for Michael V. McGee, who is retiring as director of the Company following the 2016 Annual Meeting after more than nine years of service.
Michael V. McGee, 60
Director since 2006
Compensation Committee
Nominating/Corporate Governance Committee
Retired President and Chief Executive Officer of Pardee Homes
DIRECTOR QUALIFICATION HIGHLIGHTS
Director since 2003 Capital Committee President of Public Storage DIRECTOR QUALIFICATION HIGHLIGHTS: | ● | | Leadership experience at the Company Extensive leadership and financial experience● Extensive knowledge of the real estate industry
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Mr. McGee has served as a director of PS Business Parks since August 2006. Mr. McGee was President
| ● | | Extensive Company and Chief Executive Officer of Pardee Homes (Pardee) from 2000 until his retirement in late 2013. Pardee was the largest wholly-owned subsidiary of Weyerhaeuser Real Estate Company, one of the 20 largest homebuilders in the U.S.industry knowledge |
Mr. Russell has been a director of PS Business Parks since August 2003. Mr. Russell has been President of Public Storage since July 2016 and, as recently announced, will join the Public Storage board and serve as its Chief Executive Officer effective January 1, 2019. Previously, Mr. Russell was Chief Executive Officer of PS Business Parks from August 2003 until July 2016, and President of PS Business Parks from September 2002 to August 2015. Before joining PS Business Parks, Mr. Russell had been employed by Spieker Properties, an owner and operator of office and industrial properties in Northern California (Spieker), and its predecessor, for more than ten years, becoming an officer of Spieker when it became a publicly held REIT in 1993. Mr. Russell’s qualifications for election to the PS Business Parks Board include his leadership experience and Company and industry knowledge, including his more than20-year involvement with publicly held REITs and extensive experience with office and industrial real estate. PS Business Parks • 2018 Proxy Statement • 15
Proposal 1 Peter Schultz, 70 Director since 2012 Independent Presiding Director (2018) Capital Committee (Chair) Audit Committee Retired Chief Executive Officer and Director of The Beacon Group, Inc. DIRECTOR QUALIFICATION HIGHLIGHTS: | ● | | Leadership and a subsidiary of Weyerhaeuser Company until its sale in 2014.Mr. McGee’s qualifications for election to the PS Business Parks Board include his leadership and financialsenior management experience as the former President and Chief Executive Officer of Pardee. He also brings his extensive
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| ● | | Extensive knowledge of the real estate industry and markets and legal training to the Board.PS Business Parks • 2016 Proxy Statement • 11
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Mr. Schultz has been a director of PS Business Parks since February 2012 and serves as the Company’s Independent Presiding Director for 2018. He served as President, Chief Executive Officer and a director of The Beacon Group, Inc. (Beacon) and its affiliates for more than 25 years until his retirement in 2010. Beacon, based in Southern California, and its affiliates, were engaged in the development and management of more than three million square feet of retail, industrial, hospitality and residential projects. Prior to working at The Beacon Group, Mr. Schultz was employed by Arthur Andersen for four years as a certified public accountant in its tax department. Mr. Schultz is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. Mr. Schultz’s qualifications for election to the PS Business Parks Board include his leadership and extensive real estate experience as President, Chief Executive Officer and director of Beacon and its affiliates and his extensive financial expertise gained from his almost forty years of experience in finance. PS Business Parks • 2018 Proxy Statement • 16
Proposal 1 Corporate Governance and Board Matters Corporate Governance Framework
The Board has adopted the following corporate governance documents, which establish the framework for our corporate governance and outline the general practice of our Board with respect to board structure, function and conduct, and board and committee organization. The Corporate Governance Guidelines (as defined below) are reviewed at least annually by the Nominating/Corporate Governance Committee, which makes recommendations for any changes to the Board.
Corporate Governance Framework The Board has adopted the following corporate governance documents, which establish the framework for our corporate governance and outline the general practice of our Board with respect to board structure, function and conduct, and board and committee organization. | ● | | PS Business Parks Corporate Governance Guidelines and Director Code of Ethics (the Corporate Governance Guidelines) |
| ● | | Charters of our standing committees of the Board (the Committee Charters) |
| ● | | Business Conduct Standards applicable to our officers and employees (the BCS) |
| ● | | Code of Ethics for our senior financial officers (the Code of Ethics) You can access our current Corporate Governance Guidelines, BCS, Code of Ethics and Committee Charters in the “Investor Relations” section of our website, psbusinessparks.com, or by writing to the Company’s Investor Services Department, 701 Western Avenue, Glendale, California 91201-2349.
We will disclose any amendments or waivers to the Code of Ethics on our website or in accordance with the Securities and Exchange Commission (the SEC) and NYSE requirements.
Board Leadership
We have separate individuals serving as Chairman of the Board and as Chief Executive Officer. Ronald L. Havner, Jr. has served as Chairman of the Board since March 1998. He is also Chairman and Chief Executive Officer of Public Storage. Mr. Havner has been involved with the Company since its founding and has extensive knowledge of the Company, the markets in which it operates and the real estate industry. Joseph D. Russell, Jr. is a member of our Board and has been our Chief Executive Officer since August 2003. Mr. Russell was also our President until August 2015 and is the only management director. He brings in-depth knowledge of the issues, opportunities and risks facing the Company, our business and our industry.
He is also deeply familiar with our day-to-day operations and management, and has the leadership skills to continue to drive profitable growth of PS Business Parks.
We do not have a policy against one individual holding the positions of Chairman and Chief Executive Officer. Rather, the Board evaluates the desirability of having a combined or separate Chairman and Chief Executive Officer from time-to-time and adopts a structure based on what it believes to be in the best interests of PS Business Parks and its shareholders. Currently, the Board believes that having separate Chairman and Chief Executive Officer roles is serving the interests of the Company and its shareholders well.
Independent Presiding Director
The Board has established a position of independent presiding director, to provide an independent director with a leadership role on the Board. The independent presiding director presides at meetings of all
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You can access our current Corporate Governance Guidelines, Business Conduct Standards, Code of Ethics and Committee Charters in the “Investor Relations” section of our website, psbusinessparks.com/investor-relations/corporate-governance, or by writing to the Company’s Investor Services Department, 701 Western Avenue, Glendale, California 91201-2349. The Corporate Governance Guidelines are reviewed at least annually by the Nominating/Corporate Governance Committee, which makes recommendations for any changes to the Board. We will disclose any amendments or waivers to the Code of Ethics on our website or in accordance with the SEC and New York Stock Exchange (NYSE) requirements. Commitment to Diversity The Board and its Nominating/Corporate Governance Committee are committed to ensuring that a diversity of experiences and viewpoints are represented on the Board as well as the Company’s senior management. As a reflection of this commitment, 33% of our current Board is female, and our President and CEO is female and Hispanic. Board Leadership We have separate individuals serving as Chairman of the Board and as CEO. Ronald L. Havner, Jr. has served as Chairman of the Board since March 1998. He is also Chairman and CEO of Public Storage. Mr. Havner has been involved with the Company since its founding and has extensive knowledge of the Company, the markets in which it operates and the real estate industry. Joseph D. Russell, Jr. is a member of our Board and was our CEO from August 2003 to June 2016. Mr. Russell was also our President until August 2015, currently serves as President of Public Storage and, as recently announced, will join the Public Storage board and serve as its CEO effective January 1, 2019. Maria R. Hawthorne serves as our President and was appointed to the position of CEO in July 2016. She is the only management director and bringsin-depth knowledge of the issues, opportunities and risks facing the Company, our business and our industry. She is also deeply familiar with ourday-to-day operations and management, and has the leadership skills to continue to drive profitable growth of PS Business Parks. We do not have a policy against one individual holding the positions of Chairman and CEO. Rather, the Board evaluates the desirability of having a combined or separate Chairman and CEO fromtime-to-time and adopts a structure based on what it believes to be in the best interests of PS Business Parks and its shareholders. Currently, the Board believes that having separate Chairman and CEO roles serves the interests of the Company and its shareholders well. Independent Presiding Director The Board has established a position of independent presiding director to provide an independent director with a leadership role on the Board. The independent presiding director presides at meetings of allnon-management directors in executive sessions without the presence of management. These meetings are held on a regular basis in connection with each regularly scheduled board meeting and at the request of any non-management director. In addition, the independent directors meet separately at least once annually. These sessions are designed to encourage open board discussion of any matter of interest without the Chief Executive Officer or any other members of management present. The position of independent presiding director generally rotates annually among the chairs of the standing committees of the Board. Sara Grootwassink Lewis, Chair of the Audit Committee, was the independent presiding director in 2015 and James H. Kropp, Chair of the Compensation Committee, will be the independent presiding director for 2016. Board Responsibilities and Oversight of Risk Management
The Board is responsible for overseeing our Company’s approach to major risks and our policies for assessing and managing these risks. In connection with its oversight function, the Board regularly receives presentations from management on areas of risk facing our business. The Board and management actively engage in discussions about these potential and perceived risks to the business.
In addition, the Board is assisted in its oversight responsibilities by the three standing Board committees, which have assigned areas of oversight responsibility for various matters as described in the Committee Charters and as provided in the NYSE rules.
The Audit Committee of our Board (the Audit Committee) assists the Board in overseeing the integrity of our financial
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The Compensation Committee oversees the compensation of our Chief Executive Officer and other executive officers and evaluates the appropriate compensation incentives to motivate senior management to grow long-term shareholder returns without taking undue risk.
The Nominating/Corporate Governance Committee focuses on risks associated with director and management succession planning, corporate governance and overall Board effectiveness.
The Board committees also hear reports from members of management to enable each committee to identify, discuss, understand and manage risk. The chairman of each of the Board’s standing committees reports on the discussion to the full Board at the next Board meeting. All directors have access to members of management in the event a director wishes to follow up on items discussed outside the Board meeting.
In February 2016, the Board established the new Capital Committee of the Board (the Capital Committee), as discussed in greater detail below under “Committees of the Board of Directors – The Newly Constituted Capital Committee.”
Board Orientation and Education
Each new director participates in an orientation program and receives materials and briefings concerning our business, industry, management and corporate governance policies and practices. Continuing education is provided for all directors through board materials and presentations, discussions with management and the opportunity to attend external board education programs.
Board Retirement Policy
The Corporate Governance Guidelines provide that no person will be nominated for election to the Board for any term if he or she would attain the age of 73 during such term. The Board has discretion to make exceptions to the policy to provide for a transition period of service.
Director Independence
The Board evaluates the independence of each director annually based on information supplied by the directors and the Company, and on the recommendations of the Nominating/Corporate Governance Committee. The Corporate Governance Guidelines require that a majority of the directors be independent in accordance with the requirements of the NYSE. A director qualifies as independent unless the Board determines in accordance with NYSE rules that the director has a material relationship with PS Business Parks, based on all relevant facts and circumstances. Material relationships may include commercial, industrial, consulting, legal, accounting, charitable, family and other business, professional and personal relationships, and the Board also considers the director’s relationships with Public Storage.
Following its annual review of each director’s independence, in February 2016, the Nominating/ Corporate Governance Committee recommended to the Board and the Board determined that (1) each member of the Board, other than Ronald L. Havner, Jr. and Joseph D. Russell, Jr., is independent pursuant to the rules of the NYSE, and (2) each Audit Committee member as well as each Compensation Committee member meets the additional independence requirements of the rules of the SEC. Mr. Russell was deemed not independent because he serves as Chief Executive Officer of PS Business Parks. Mr. Havner was deemed not independent because he is Chairman, President and Chief Executive Officer of Public Storage. Mr. Pruitt is independent because he serves only as a board member and not also as an executive officer of Public Storage or PS Business Parks. Relationships between Public Storage and PS Business Parks are described on page 42.
Committees of the Board of Directors
Our Board has three standing committees: the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee. Each of the standing committees operates pursuant to a written charter, which can be viewed at our website at psbusinessparks.com/investor-relations/corporate-governance. A print copy will be provided to any shareholder who requests a copy by writing to the Company’s Secretary at PS Business Parks, Inc., 701 Western Avenue, Glendale, CA 91201-2349.
Our three standing committees are described below.
Audit Committee
The primary functions of the Audit Committee, as set forth in its charter, are to assist the Board in fulfilling its responsibilities for oversight of:
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the integrity of our financial statements;
compliance with legal and regulatory requirements;
the qualifications, independence and performance of the independent registered public accounting firm; and
the scope and results of internal audits, the Company’s internal controls over financial reporting and the performance of the Company’s internal audit function.
Among other things, the Audit Committee appoints, evaluates and determines the compensation of the independent registered public accounting firm; reviews and approves the scope of the annual audit, the audit fee and the financial statements; approves all other services and fees performed by the independent registered public accounting firm; prepares the Audit Committee Report for inclusion in the annual proxy statement; and annually reviews its charter and performance. Additionally, the Audit Committee reviews and discusses with management and the independent auditor the Company’s major financial risk exposures and the steps management has taken to monitor any significant non-financial risk exposures and related policies and practices to assess and control such exposures, including the Company’s risk assessment and risk management policies.
The Board has determined that each member of the Audit Committee meets the financial literacy and independence standards of the NYSE. The Board has also determined that each member of the Audit Committee qualifies as an audit committee financial expert within the meaning of the rules of the SEC and NYSE.
Compensation Committee
The primary functions of the Compensation Committee, as set forth in its charter, are to:
determine, either as a committee or together with other independent directors, the compensation of the Company’s Chief Executive Officer;
determine the compensation of other executive officers;
administer the Company’s equity and executive officer incentive compensation plans;
review and discuss with management the Compensation Discussion and Analysis (CD&A) to be included in the proxy statement and incorporated by reference into the Form 10-K and to recommend to the Board inclusion of the CD&A in the Form 10-K and proxy statement;
provide a description of the processes and procedures for the consideration and determination of executive compensation for inclusion in the Company’s annual proxy statement;
review with management its annual assessment of potential risks related to the Company’s compensation policies and practices applicable to all employees;
review the advisory shareholder votes on the Company’s executive compensation programs;
produce the Compensation Committee Report for inclusion in the annual proxy statement; and
evaluate its performance annually.
The Compensation Committee has not delegated any of its responsibilities to individual members of the committee or to a subcommittee of the committee, although it has the discretion to do so.
As required by the charter, during 2015, the Compensation Committee and in some instances, the Compensation Committee and the independent members of the Board, made all final compensation decisions for our executive officers, including the named executive officers (the named executive officers) set forth in the Summary Compensation Table below. The Compensation Committee has the sole authority to retain outside compensation consultants for advice, but historically and for 2015, has not done so, relying instead on surveys of publicly available information about senior executive compensation at similar companies. For a discussion of the Compensation Committee’s use of survey information in 2015, as well as the role of Mr. Russell, our Chief Executive Officer, in determining or recommending the amount of compensation paid to our named executive officers in 2015, see the CD&A beginning on page 24.
Compensation Committee Interlocks and Insider Participation.No executive officer of PS Business Parks served on the compensation committee or board of directors of any other entity which has an executive officer who also served on our Compensation Committee or Board at any time during 2015, and no member of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 of SEC Regulation S-K.
Messrs. Havner and Russell are present or former officers of the Company and are members of the Board.
Oversight of Compensation Risks. With respect to consideration of risks related to compensation, in February 2016, the Compensation Committee considered a report from management concerning its review of potential risks related to compensation policies and practices applicable to all of the Company’s employees. The Compensation Committee also considered management’s conclusion that
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the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on our Company.
In connection with preparing the report for the Compensation Committee’s consideration, members of our senior management team, including our Chief Executive Officer, reviewed the target metrics for all of our employee incentive compensation plans. At the completion of the review, management concluded that the incentive compensation plans did not create any significant motivation or opportunity for employees to take undue risks to achieve an incentive compensation award. Instead, management concluded that employees who are eligible for incentive compensation are properly incentivized to achieve short- and long-term Company goals without creating undue risks for the Company. Following completion of its review, members of our senior management discussed the results of management’s compensation risk assessment with the Compensation Committee. The Compensation Committee, following discussion, reached a similar conclusion. The Compensation Committee expects to further review compensation risks from time to time.
Nominating/Corporate Governance Committee
The primary functions of the Nominating/Corporate Governance Committee, as set forth in its charter, are to:
identify, evaluate and make recommendations to the Board for director nominees for each annual shareholder meeting and to fill any vacancy on the Board;
develop a set of corporate governance principles applicable to the Company and to review and assess the adequacy of those guidelines on an ongoing basis and recommend any changes to the Board; and
oversee the annual Board assessment of Board performance.
The Nominating/Corporate Governance Committee will consider properly submitted shareholder nominations for candidates for the Board. See “Consideration of Candidates for Director” below. Other duties and responsibilities include periodically reviewing the structure, size, composition and operation of the Board and each Board committee; recommending assignments of directors to Board committees; conducting a preliminary review of director independence; overseeing director orientation; and annually reviewing and evaluating its charter and performance.
The Newly Constituted Capital Committee
In February 2016, the Board established the new Capital Committee, which will report to the Board, and appointed Mr. Schultz, Ms. Lewis and Mr. Russell as its initial members. The function of the Capital Committee will be to focus on assessing, monitoring and optimizing the Company’s capital expenditures. The committee’s focus will include development and redevelopment opportunities as well as the Company’s annual recurring capital expenditures which include maintenance capital, tenant improvements and leasing commissions. The goal is to place the Company in the best position to maximize the long-term benefits of its capital expenditures while ensuring its assets are well maintained and positioned in the marketplace to meet the needs and demands of the Company’s customer base. The Capital Committee will operate pursuant to a formal charter, which is expected to be developed and adopted by the members of the committee in the coming months.
Communications with the Board of Directors
The Company provides a process by which shareholders and interested parties may communicate with the Board. Communication to the Board should be addressed to: Board of Directors, c/o Edward A. Stokx, Secretary, PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201-2349. Communications that are intended for a specified individual director or group of directors should be addressed to the director(s) c/o Secretary at the above address, and all such communications received will be forwarded to the designated director(s).
Board and Committee Meetings and Attendance
The Board meets at regularly scheduled intervals and may hold additional special meetings as necessary or desirable in furtherance of its oversight responsibilities. As described above, the non-management directors generally meet in executive session without the presence of management in connection with each regularly scheduled Board meeting.
In 2015, the Board held five meetings. Each director attended 100% of the Board meetings held and, if a member of a committee of the Board, 100% of the meetings held by both the Board and all committees of the Board on which the director served. All of the Board’s nine directors attended the 2015 annual meeting of shareholders.
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Proposal 1
The following table summarizes the membership of the Board’s standing committees and the number of meetings held by each committee in 2015.
| | | | | | | | | | | | | | Director | | Audit | | | Compensation | | | Nominating/ Corporate Governance | | Ronald L. Havner, Jr. | | | | | | | | | | | | | Joseph D. Russel, Jr. | | | | | | | | | | | | | Jennifer Holden Dunbar | | | Member | | | | Member | | | | | | James H. Kropp (Independent Presiding Director for 2016) | | | | | | | Chair | | | | Member | | Sara Grootwassink Lewis (Independent Presiding Director for 2015) | | | Chair | | | | | | | | Member | | Gary E. Pruitt | | | Member | | | | | | | | | | Robert S. Rollo | | | | | | | Member | | | | Chair | | Peter Schultz | | | Member | | | | | | | | | | Michael V. McGee* | | | | | | | Member | | | | Member | | Number of Meetings in 2015 | | | 4 | | | | 3 | | | | 4 | |
*Not running for re-election in 2016.
Compensation of Directors
The Compensation Committee periodically reviews the Company’s non-employee director compensation and recommends any changes to the Board. The Board makes the final determination as to director compensation. The Board has approved the mix of cash and equity compensation described below.
Retainers and Meeting Fees. Retainers are paid in cash quarterly and are pro-rated when a director joins the Board other than at the beginning of a calendar year. During 2015, each non-employee director was entitled to receive the following retainers and meeting fees for Board and Board committee service:
| | | | | Compensation | | Amount | | Board member | | | $25,000 | | Audit Committee Chair’s supplemental retainer | | | 10,000 | | Other standing committee chairs’ supplemental
retainer
| | | 5,000 | | Board meeting attendance
(per meeting attended in person)
| | | 1,000 | | Board meeting attendance
(per meeting attended by telephone)
| | | 500 | | Board committee meeting attendance
(per meeting attended in person)
| | | 1,000 | | Board committee meeting attendance
(per meeting attended by telephone)
| | | 500 | |
Equity Awards. Each new non-employee director, upon the date of his or her initial election by the Board or the shareholders to serve as a non-employee director, is automatically granted an option to purchase 10,000 shares
of Common Stock, which vests in five equal annual installments beginning one year from the date of grant, subject to continued service.
Annually, each non-employee director receives a non-qualified stock option to purchase 2,000 shares of Common Stock, which vests in five equal annual installments beginning one year from the date of grant based on continued service. The annual grants are made immediately following the annual meeting of shareholders at the closing price for the Common Stock on the NYSE on such date.
Upon the retirement of a director from the Board because the director is not nominated for re-election due to the Board’s Mandatory Retirement Policy, all outstanding options held by the director vest effective as of the date of his or her retirement and the director has one year to exercise all vested options.
of anynon-management director. In addition, the independent directors meet separately at least once annually. These sessions are designed to encourage open discussion of any matter of interest without the CEO or any other members of management present. The position of independent presiding director generally rotates annually among the chairs of the standing committees of the Board. Robert S. Rollo, Chair of the Nominating/Corporate Governance Committee, was the independent presiding director for 2017. Peter Schultz is the independent presiding director for 2018. Board Responsibilities and Oversight of Risk Management The Board is responsible for overseeing our Company’s approach to major risks and our policies for assessing and managing these risks. In connection with its oversight function, the Board regularly receives presentations from management on areas of risk facing our business. The Board and management actively engage in discussions about these potential and perceived risks to the business. In addition, the Board is assisted in its oversight responsibilities by the four standing Board committees (as described below), which have assigned areas of oversight responsibility for various matters, as described in the Committee Charters and as provided in the NYSE rules. The Audit Committee of our Board (the Audit Committee) assists the Board in overseeing the integrity of our financial statements, the qualifications, independence and performance of our independent registered public accounting firm and the performance of our internal audit function. Pursuant to its charter, the Audit Committee also evaluates Company practice and policies with respect to risk assessment, risk management and financial risk on a regular basis. The Compensation Committee oversees the compensation of our CEO and other executive officers and evaluates compensation incentives to ensure they will motivate senior management to grow long-term shareholder returns without taking undue risk. The Nominating/Corporate Governance Committee focuses on risks associated with director and management succession planning, corporate governance and overall Board effectiveness. The Capital Committee oversees the optimization of the Company’s capital expenditures. The Committee’s goal is to place the Company in the best position to maximize the long-term benefit of its capital expenditures, while at the same time ensuring those assets are well maintained and positioned to meet the needs and demands of the Company’s customer base. The Board committees also hear reports from members of management to enable each committee to identify, discuss, understand and manage risk. The chairman of each of the Board’s standing committees reports on interim individual committee discussion to the full Board at each Board meeting. All directors have access to members of management in the event a director wishes to follow up on items discussed outside the Board meeting. Board Orientation and Education Each new director participates in an orientation program and receives materials and briefings concerning our business, industry, management and corporate governance policies and practices. Continuing education is provided for all directors through board materials and presentations, discussions with management and the opportunity to attend external board education programs. Board Retirement Policy The Corporate Governance Guidelines provide that no person will be nominated for election to the Board for any term unless he or she is 73 years of age or younger on the first day of the term. The Board has discretion to make exceptions to the policy to provide for a transition period of service. PS Business Parks • 2018 Proxy Statement • 18
Proposal 1 Director Independence The Board evaluates the independence of each director annually based on information supplied by the directors and the Company, and on the recommendations of the Nominating/Corporate Governance Committee. The Corporate Governance Guidelines require that a majority of the directors be independent in accordance with the requirements of the NYSE. A director qualifies as independent unless the Board determines, in accordance with NYSE rules, that the director has a material relationship with PS Business Parks, based on all relevant facts and circumstances. Material relationships may include commercial, industrial, consulting, legal, accounting, charitable, family and other business, professional and personal relationships. The Board also considers the director’s relationships with Public Storage. Following its annual review of each director’s independence, in February 2018, the Nominating/ Corporate Governance Committee recommended to the Board and the Board determined that (i) each of Jennifer Holden Dunbar, James H. Kropp, Sara Grootwassink Lewis, Gary E. Pruitt, Robert S. Rollo and Peter Schultz is independent pursuant to the rules of the NYSE, and (ii) each Audit Committee member and each Compensation Committee member meets the additional independence requirements of the rules of the SEC. Committees of the Board of Directors Our Board has four standing committees: the Audit Committee, the Compensation Committee, the Nominating/Corporate Governance Committee and the Capital Committee. Each of the standing committees operates pursuant to a written charter, which can be viewed at our website at psbusinessparks.com/investor-relations/corporate-governance. A print copy will be provided to any shareholder who requests a copy by writing to the Company’s Secretary at PS Business Parks, Inc., 701 Western Avenue, Glendale, CA 91201-2349. Our four standing committees are described below. Audit Committee The primary functions of the Audit Committee, as set forth in its charter, are to assist the Board in fulfilling its responsibilities for oversight of: the integrity of our financial statements; compliance with legal and regulatory requirements; the qualifications, independence and performance of the independent registered public accounting firm; and the scope and results of internal audits, the Company’s internal controls over financial reporting and the performance of the Company’s internal audit function. Among other things, the Audit Committee appoints, evaluates and determines the compensation of the independent registered public accounting firm; reviews and approves the scope of the annual audit, the audit fee and the financial statements; approves all other services and fees performed by the independent registered public accounting firm; prepares the Audit Committee Report for inclusion in the annual proxy statement; and annually reviews its charter and performance. Additionally, the Audit Committee reviews and discusses with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment policies. Each member of the Audit Committee: (1) meets the financial literacy and independence standards of the NYSE; (2) qualifies as an audit committee financial expert within the meaning of the rules of the SEC and NYSE; and, (3) qualifies as independent within the meaning of the rules of the SEC and NYSE. PS Business Parks • 2018 Proxy Statement • 19
Proposal 1 Compensation Committee The primary functions of the Compensation Committee, as set forth in its charter, are to: determine, either as a committee or together with other independent directors, the compensation of the Company’s CEO; determine the compensation of other executive officers; administer the Company’s equity and executive officer incentive compensation plans; review and discuss with management the Compensation Discussion and Analysis (CD&A) to be included in the proxy statement and incorporated by reference into the Form10-K and to recommend to the Board for inclusion of the CD&A in the Form10-K and proxy statement; provide a description of the processes and procedures for the consideration and determination of executive compensation for inclusion in the Company’s annual proxy statement; review with management its annual assessment of potential risks related to the Company’s compensation policies and practices applicable to all employees; review the advisory shareholder votes on the Company’s executive compensation programs; produce the Compensation Committee Report for inclusion in the annual proxy statement; and evaluate its performance annually. The Compensation Committee has not delegated any of its responsibilities to individual members of the committee or to a subcommittee of the committee, although it has the discretion to do so. As required by its charter, the Compensation Committee and, in some instances, the Compensation Committee and all other independent members of the Board, made final compensation decisions for executive officers in 2017, including the NEOs set forth in the Summary Compensation Table below. The Compensation Committee has the sole authority to retain outside compensation consultants for advice, but historically and for 2017, has not done so, relying instead on surveys of publicly available information about senior executive compensation at similar companies. For a discussion of the Compensation Committee’s use of survey information in 2017, as well as the role of Ms. Hawthorne, our President and CEO, in determining or recommending the amount of compensation paid to our NEOs in 2017, see the CD&A beginning on page 28. Compensation Committee Interlocks and Insider Participation.No executive officer of PS Business Parks served on the compensation committee or board of directors of any other entity which has an executive officer who also served on our Compensation Committee or Board at any time during 2017, and no member of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 of SEC RegulationS-K. Messrs. Havner and Russell and Ms. Hawthorne are present or former officers of the Company and are members of the Board. Oversight of Compensation Risks.With respect to consideration of risks related to compensation, the Compensation Committee annually considers a report from management concerning its review of potential risks related to compensation policies and practices applicable to all of the Company’s employees. In early 2018, the Compensation Committee considered management’s conclusion that the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. PS Business Parks • 2018 Proxy Statement • 20
Proposal 1 In connection with preparing the report for the Compensation Committee’s consideration, members of our senior management team, including our CEO, reviewed the target metrics for all of our employee incentive compensation plans. At the completion of the review, management concluded that the incentive compensation plans did not create any significant motivation or opportunity for employees to take undue risks to achieve an incentive compensation award. Instead, management concluded that employees who are eligible for incentive compensation are properly incentivized to achieve short- and long-term Company goals without creating undue risks for the Company. Following completion of its review, members of our senior management discussed the results of management’s compensation risk assessment with the Compensation Committee. The Compensation Committee, following discussion, reached a similar conclusion. The Compensation Committee expects to further review compensation risks from time to time. Nominating/Corporate Governance Committee The primary functions of the Nominating/Corporate Governance Committee, as set forth in its charter, are to: identify, evaluate and make recommendations to the Board for director nominees for each annual shareholder meeting and to fill any vacancy on the Board; develop a set of corporate governance principles applicable to the Company and to review and assess the adequacy of those guidelines on an ongoing basis and recommend any changes to the Board; and oversee the annual Board assessment of Board performance. Our Board has delegated to the Nominating/Corporate Governance Committee responsibility for recommending nominees for election to the Board. Other duties and responsibilities of the Nominating/Corporate Governance Committee include periodically reviewing the structure, size, composition and operation of the Board and each Board committee; recommending assignments of directors to Board committees; conducting a preliminary review of director independence; overseeing director orientation; and annually reviewing and evaluating its charter and performance. The Nominating/Corporate Governance Committee is further guided by the principles set forth in its charter. Retirement Stock Grants. Under our Retirement Plan for Non-Employee Directors, each non-employee director of the Company receives, upon retirement as a director of the Company, 1,000 shares of fully-vested Common Stock for each full year of service as a non-employee director of the Company, up to a maximum of 8,000 shares. The awards are intended to retain and reward long-term service on the Board and to provide equity compensation to Board members. Directors receive any dividends paid on vested shares. At December 31, 2015, Messrs. Havner, Kropp and McGee were each entitled to receive 8,000 fully-vested shares of Common Stock upon retirement; Ms. Dunbar was entitled to receive 6,000 shares; Ms. Lewis was entitled to receive 5,000 shares; Messrs. Pruitt and Schultz were each entitled to 3,000 shares; and Mr. Rollo was entitled to receive 2,000 shares. In connection with Mr. McGee’s retirement as director, he will receive 8,000 fully vested shares of Common Stock shortly after April 26, 2016, the
PS Business Parks • 2016 Proxy Statement • 16
Proposal 1
last day of Mr. McGee’s service as director. As of December 31, 2015, the value of each award of 8,000 shares was $699,440; the value of 6,000 shares was $524,580, the value of 5,000 shares was $437,150; the
value of 3,000 shares was $262,290; and the value of 2,000 shares was $174,860, each based on the closing price of $87.43 of our common stock on December 31, 2015.
Director Compensation in Fiscal 2015. The following table presents the compensation provided by the Company to our directors for the fiscal year ended December 31, 2015:
| | | | | | | | | | | | | | | | | | Director | | Fees earned or paid in cash | | | Option Awards (2) | | | All Other Compensation (3) | | | Total | | | | | | | Ronald L. Havner, Jr. (1) | | $ | - | | | $ | 16,980 | | | $ | 17,600 | | | $ | 34,580 | | | | | | | Jennifer Holden Dunbar | | | 36,500 | | | | 16,980 | | | | 13,200 | | | | 66,680 | | | | | | | James H. Kropp | | | 41,000 | | | | 16,980 | | | | 17,600 | | | | 75,580 | | | | | | | Sara Grootwassink Lewis | | | 47,500 | | | | 16,980 | | | | 11,000 | | | | 75,480 | | | | | | | Michael V. McGee | | | 39,000 | | | | 16,980 | (4) | | | 17,600 | | | | 73,580 | | | | | | | Gary E. Pruitt | | | 34,500 | | | | 16,980 | | | | 6,600 | | | | 58,080 | | | | | | | Robert S. Rollo | | | 39,500 | | | | 16,980 | | | | 3,400 | | | | 59,880 | | | | | | | Peter Schultz | | | 34,000 | | | | 16,980 | | | | 6,600 | | | | 57,580 | |
(1) | Ronald L. Havner, Jr., Chairman, and Joseph D. Russell, Jr. are also directors but did not receive any cash compensation for service as directors during 2015. Mr. Russell is also not eligible to receive equity awards for his service as a director or participate in the retirement stock award program described above. Mr. Russell’s compensation as Chief Executive Officer is set forth below beginning on page 24.
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(2) | Reflects the fair value on the date of grant of option awards during 2015. As of December 31, 2015, each director as of such date had the following number of options outstanding: Ronald L. Havner, Jr., 26,685 of which 20,645 are vested; Jennifer Holden Dunbar, 20,994 of which 14,954 are vested; James H. Kropp, 18,409 of which 12,369 are vested; Sara Grootwassink Lewis, 16,342 of which 10,302 are vested; Michael V. McGee, 28,751 of which 22,711 are vested; Gary E. Pruitt, 18,410 of which 8,647 are vested; Robert S. Rollo, 14,353 of which 4,542 are vested; Peter Schultz, 18,410 of which 8,647 are vested; and Joseph D. Russell, Jr., no options outstanding. For a more detailed discussion of assumptions used in the calculation of these amounts, refer to Note 11 to the Company’s audited financial statements for the fiscal year ended December 31, 2015, included in the Form 10-K filed with the SEC on February 23, 2016.
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(3) | All other compensation consists of dividend equivalents paid on vested retirement shares.
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(4) | In February 2016, the Compensation Committee approved (i) the accelerated vesting of the 6,040 outstanding and unvested options held by Mr. McGee as of April 26, 2016, the last day of Mr. McGee’s service as director of the Company and (ii) the extension of the exercise period for all of Mr. McGee’s 28,751 options until April 26, 2017.
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Director Stock Ownership Policy
Pursuant to the Corporate Governance Guidelines, each non-management director is encouraged to have a significant stock ownership in the Company. All directors are expected, within three years of election, to own at least $100,000 of common stock of the Company, determined by using the acquisition price. All of our directors meet this stock ownership requirement.
Consideration of Candidates for Director
Shareholder Recommendations. The policy of the Nominating/Corporate Governance Committee is to consider properly submitted shareholder recommendations for candidates for membership on the Board, as described below under “Identifying and Evaluating Nominees for Directors.” Under this policy, shareholder recommendations may only be submitted by a shareholder entitled to submit shareholder proposals under the SEC rules. Any shareholder
recommendations proposed for consideration by the Nominating/Corporate Governance Committee should include the nominee’s name and qualifications for board membership, including the information required under Regulation 14A under the Securities Exchange Act of 1934, as amended (the Exchange Act), and should be addressed to: Edward A. Stokx, Secretary, PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201-2349. Recommendations should be submitted in the time frame described in this proxy statement under “Deadlines for Receipt of Shareholder Proposals” on page 45.
Director Qualifications.Members.We believe that members of the Board should have high professional and personal ethics and values. They should have broad experience at the policy-making level in business or other relevant experience. They should be committed to enhancing shareholder value and should have | | | | | PS Business Parks • 2016 Proxy Statement • 17 |
Proposal 1
sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform all director duties responsibly. Each director must represent the interests of all shareholders. In general, the Board seeks to add directors who meet the independence requirements of the NYSE rules. In addition, director candidates must submit on an annual basis a completed director questionnaire concerning matters related to independence determination, the determination of whether a candidate qualifies as an audit committee financial expert, and other proxy disclosure matters and must satisfactorily complete a background investigation by a third-party firm. The Board has delegated to the Nominating/Corporate Governance Committee responsibility for recommending to the Board new directors for election and assessing the skills and characteristics required of Board members in the context of the current make-up of the Board. This assessment includes directors’ qualifications as independent, as well as consideration of skills, knowledge, perspective, broad business judgment and leadership, relevant specific industry or regulatory affairs knowledge, business creativity and vision and experience, all in the context of an assessment of the perceived needs of the Board at that time. Director Diversity.Although the Nominating/Corporate Governance Committee does not have and does not believe there is a need for a formal policy concerning diversity, it seeks to ensure that diversea diversity of different experiences and viewpoints are represented on the Board. As a reflection of this commitment, 33% of our current Board and is also guided by the principles set forth in its Committee Charter. There are no other policies or guidelines that limit the selection of director candidates by the Nominating/Corporate Governance Committee, and the Committee and the Board have and exercise broad discretion to select director candidates who will best serve the Board, PS Business Parks and its shareholders.female.
Identifying and Evaluating Nominees for DirectorsDirectors..The Nominating/Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. PS Business Parks • 2018 Proxy Statement • 21
Proposal 1 The Nominating/Corporate Governance Committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the Nominating/Corporate Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating/Corporate Governance Committee through current Board members, professional search firms, shareholders or other persons. These candidates are evaluated at meetings of the Nominating/Corporate Governance Committee and may be considered at any point during the year. As described above, theThe Nominating/Corporate Governance Committee considers properly submitted shareholder nominations of candidates for the Board in the same manner as other candidates. Following verification of the shareholder status of persons proposing candidates, recommendations will be aggregated and considered by the Nominating/Corporate Governance Committee prior to the issuance of the proxy statement for the annual meeting. If any materials are provided by a shareholder in connection with the recommendation of a director candidate, such materials are forwarded to the Nominating/Corporate Governance Committee. The Nominating/Corporate Governance Committee may also review materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a shareholder. In evaluating such nominations, the Nominating/Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board.
We do not have any other policies or guidelines that limit the selection of director candidates by the Nominating/Corporate Governance Committee, and the Nominating/Corporate Governance Committee and the Board have and continue to exercise broad discretion to select director candidates who will best serve the Board and the Company in the current and anticipated business environment. Capital Committee The function of the Capital Committee is to focus on assessing, monitoring and optimizing the Company’s capital expenditures. The committee’s focus will include development and redevelopment opportunities as well as the Company’s annual recurring capital expenditures, which include maintenance capital, tenant improvements and leasing commissions. The goal is to place the Company in the best position to maximize the long-term benefits of its capital expenditures while ensuring its assets are well maintained and positioned in the marketplace to meet the needs and demands of the Company’s customer base. The Capital Committee operates pursuant to a formal charter adopted by the members of the committee in July 2016. Communications with the Board of Directors The Company provides a process by which shareholders and interested parties may communicate with the Board. Communication to the Board should be addressed to: Board of Directors, c/o Maria R. Hawthorne, President and Chief Executive Officer, PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201-2349. Communications that are intended for a specified individual director or group of directors should be addressed to the director(s) c/o Secretary at the above address, and all such communications received will be forwarded to the designated director(s). Board and Committee Meetings and Attendance The Board meets at regularly scheduled intervals and may hold additional special meetings as necessary or desirable in furtherance of its oversight responsibilities. As described above, thenon-management directors generally meet in executive session without the presence of management in connection with each regularly scheduled Board meeting. PS Business Parks • 2018 Proxy Statement • 22
Proposal 1 In 2017, the Board held fourin-person meetings and two special telephonic meetings. Each director who served as a director at the time attended at least 83% of the Board meetings held and, if a member of a committee of the Board, at least 94% of the meetings held by both the Board and all committees of the Board on which the director served. We do not have a policy regarding directors’ attendance at the annual meeting of shareholders, but directors are encouraged to attend. All of the Board’s nine directors attended the 2017 annual meeting of shareholders. The following table summarizes the membership of the Board’s standing committees and the number of meetings held by each committee in 2017. Board Committee Membership and 2017 Meetings | | | | | | | | | | Director | | Audit | | Compensation | | Nominating/ Corporate Governance | | Capital | | Ronald L. Havner, Jr. | | | | | | | | | | Joseph D. Russell, Jr. | | | | | | | | Member | | Maria R. Hawthorne | | | | | | | | | | Jennifer Holden Dunbar | | Member | | Member | | | | | | James H. Kropp | | | | Chair | | Member | | | | Sara Grootwassink Lewis | | Chair | | | | Member | | Member | | Gary E. Pruitt | | Member | | | | | | | | Robert S. Rollo (Independent Presiding Director for 2017) | | | | Member | | Chair | | | | Peter Schultz (Independent Presiding Director for 2018) | | Member | | | | | | Chair | | Number of Meetings in 2017 | | 6 | | 5 | | 3 | | 4 |
Compensation of Directors The Compensation Committee periodically reviews the Company’snon-employee director compensation and recommends any changes to the Board. The Board makes the final determination as to director compensation. The Board has approved the mix of cash and equity compensation described below. Retainers and Meeting Fees.Retainers are paid in cash quarterly and arepro-rated when a director joins the Board other than at the beginning of a calendar year. During 2017, eachnon-employee director was entitled to receive the following retainers and meeting fees for Board and Board committee service: | | | | | | Compensation | | Amount | | | Board member | | $ | 25,000 | | | Audit Committee Chair’s supplemental retainer | | | 10,000 | | | Other standing committee chairs’ supplemental retainer | | | 5,000 | | | Board meeting attendance (per meeting attended in person) | | | 1,000 | | | Board meeting attendance (per meeting attended by telephone) | | | 500 | | | Board committee meeting attendance (per meeting attended in person) | | | 1,000 | | | Board committee meeting attendance (per meeting attended by telephone) | | | 500 | |
PS Business Parks • 20162018 Proxy Statement • 1823
Proposal 2:
Ratification of independent registered public accounting firm
The Audit Committee has appointed Ernst & Young LLP (EY) as the Company’s independent registered public accounting firm to audit the Consolidated Financial Statements of PS Business Parks and its subsidiaries for the year ending December 31, 2016
| RECOMMENDATION:
Vote FOR ratification of EY
|
PS Business Parks • 2016 Proxy Statement • 19
Proposal 21 PROPOSAL 2 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Executive SummaryEquity Awards.Each newnon-employee director, upon the date of his or her initial election by the Board or the shareholders to serve as anon-employee director, is automatically granted an option to purchase 10,000 shares of Common Stock, which vests in five equal annual installments beginning one year from the date of grant, subject to continued service.
Annually, eachnon-employee director receives anon-qualified stock option to purchase 2,000 shares of Common Stock, which vests in five equal annual installments beginning one year from the date of grant based on continued service. The Board recommends thatannual grants are made immediately following the annual meeting of shareholders ratifyat the Audit Committee’s selection of Ernst & Young as the Company’s independent registered public accounting firm (Independent Accountants)closing price for the fiscal year ending December 31, 2016. Ernst & Young has acted asCommon Stock on the Independent Accountants sinceNYSE on such date. Upon the Company’s organization in 1990. Ratificationretirement of a director from the Board because the director is not requirednominated forre-election due to the Board’s Mandatory Retirement Policy, all outstanding options held by the Company’s bylaws, but the Board believes that shareholder ratificationdirector vest effective as of the appointment is good corporate governance. If shareholders do not ratifydate of his or her retirement and the appointment of Ernst & Young, the Audit Committee will reconsider its selection, but may nevertheless determinedirector has one year to do so. Even if the appointment of Ernst & Young is ratified by the shareholders, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that a change would be in the best interestexercise all vested options.
Retirement Stock Grants.Under our Retirement Plan forNon-Employee Directors, eachnon-employee director of the Company and its shareholders. A representative of Ernst & Young will be in attendance at the 2016 Annual Meeting and will have the opportunity to makereceives, upon retirement as a statement if they desire to do so and will be available to respond to appropriate questions.
Audit and Non-Audit Fees
The following table shows the fees billed or expected to be billed to the Company by Ernst & Young for audit and other services provided for fiscal 2015 and 2014:
| | | | | | | | | | | | 2015 | | | 2014 | | | | | Audit fees | | $ | 512,000 | | | $ | 460,000 | | | | | Audit-related fees | | | 21,000 | | | | 20,000 | | | | | Tax Fees | | | 124,000 | | | | 87,000 | | | | | All Other Fees | | | 0 | | | | 0 | | | | | Total | | | 657,000 | | | | 567,000 | |
Audit Fees.Audit fees represent fees for professional services provided in connection with the audit of the Company’s annual financial statements and internal control over financial reporting, review of the quarterly financial statements included in the Company’s quarterly reports on Form 10-Q and services in connection with the Company’s registration statements.
Audit related fees. Audit-related fees represent professional fees provided in connection with the audit of the Company’s 401(k)/Profit Sharing Plan (the 401(k) Plan).
Tax fees. During 2015 and 2014, all of the tax services consisted of tax compliance and consulting services.
Auditor Independence
The Audit Committee has determined that the Independent Accountants’ provision of the non-audit services described above is compatible with maintaining the Independent Accountants’ independence.
Policy to Approve Ernst & Young LLP Services
The Audit Committee has adopted a pre-approval policy relating to services performed by the Company’s independent registered public accounting firm. Under this policy, the Audit Committeedirector of the Company, pre-approved all services performed by Ernst & Young during 20151,000 shares of fully-vested Common Stock for each full year of service as anon-employee director of the
Company, up to a maximum of 8,000 shares. The awards are intended to retain and 2014, including those listedreward long-term service on the Board and to provide equity compensation to Board members. Directors receive any dividends paid on vested shares. At December 31, 2017, Messrs. Havner and Kropp and Ms. Dunbar were each entitled to receive 8,000 fully-vested shares of Common Stock upon retirement; Ms. Lewis was entitled to receive 7,000 shares; Messrs. Pruitt and Schultz were each entitled to 5,000 shares; and Mr. Rollo was entitled to receive 4,000 shares. As of December 31, 2017, the value of each award of 8,000 shares was $1,000,720; the value of 7,000 shares was $875,630; the value of 5,000 shares was $625,450; and the value of 4,000 shares was $500,360, each based on the closing price of $125.09 of our common stock as of December 29, 2017. Director Stock Ownership Guidelines. Pursuant to the Corporate Governance Guidelines, eachnon-management director is encouraged to have a significant stock ownership in the previous table. The ChairmanCompany. All directors are expected, within three years of election, to own at least $100,000 of common stock of the Audit Committee hasCompany, as determined using the authority to grant required approvals between meetingsper- share value on the date of the Audit Committee, provided that any exerciseacquisition. All of our directors meet this authority is presented at the next committee meeting.stock ownership requirement. PS Business Parks • 20162018 Proxy Statement • 2024
Proposal 21 Audit Committee Report
Director Compensation in Fiscal 2017.The Audit Committee’s responsibilities include appointingfollowing table presents the Company’s independent registered public accounting firm, pre-approving audit and non-audit servicescompensation provided by the firm and assisting the Board in providing oversightCompany to the Company’s financial reporting process. In fulfilling its oversight responsibilities, the Audit Committee meets with the Company’s independent registered public accounting firm, internal auditors and management to review accounting, auditing, internal controls and financial reporting matters. In fulfilling its responsibilities, the Audit Committee meets with the Company’s independent registered public accounting firm, internal auditor and management to review accounting auditing internal controls and financial reporting matters. Management is responsibleour directors for the Company’s financial statements, including the estimates and judgments on which they are based, for maintaining effective internal controls over financial reporting and for assessing the effectiveness of internal controls over financial reporting. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing a report thereon. It is not the Audit Committee’s responsibility to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete, accurate and in accordance with U.S. generally accepted accounting principles and applicable laws, rules and regulations. The Audit Committee’s responsibility is to monitor and oversee these processes and necessarily relies on the work and assurances of the Company’s management and of the Company’s independent registered public accounting firm.
In connection with its oversight responsibilities related to the Company’s financial statements included in the Company’s Annual Report on Form 10-K, the Audit Committee met with management and Ernst & Young LLP, the Company’s independent registered public accounting firm, and reviewed and discussed with them the audited consolidated financial statements. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by PCAOB Auditing Standard No. 16 (Communication with Audit Committees), as modified or supplemented. The Audit Committee also discussed with the Independent Accountants the overall scope and plans for the
annual audit, the results of their audit, their evaluation of the Company’s internal controls and the overall quality of the Company’s financial reporting.
The Company’s independent registered public accounting firm also provided to the Audit Committee the written disclosures and the letter required by the applicable rules of the Public Company Accounting Oversight Board, and the Audit Committee discussed with the independent registered public accounting firm that firm’s independence. In addition, the Audit Committee has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company and its affiliates is compatible with the firm’s independence.
During 2015, management documented, tested and evaluated the Company’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and SEC regulations adopted thereunder. The Audit Committee met with representatives of management, the internal auditors, legal counsel and the independent registered public accounting firm on a regular basis throughout the year to discuss the progress of the process. At the conclusion of this process, the Audit Committee received from management its assessment and report on the effectiveness of the Company’s internal controls over financial reporting. In addition, the Audit Committee received from Ernst & Young LLP its assessment of and opinion on the Company’s internal control over financial reporting. These assessments and reports are as of December 31, 2015. The Audit Committee reviewed and discussed the results of management’s assessment and Ernst & Young LLP’s audit.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for thefiscal year ended December 31, 2015 for filing with the Securities and Exchange Commission. The Audit Committee also approved the appointment of Ernst & Young LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2016 and recommended that the Board submit this appointment to the Company’s shareholders for ratification at the 2016 Annual Meeting.2017:
THE AUDIT COMMITTEE
Sara Grootwassink Lewis, Chair
| | | | | | | | | | | | | | | | | | Director | | Fees earned or paid in cash | | | Option Awards (2) | | | All Other Compensation (3) | | | Total | | Ronald L. Havner, Jr. (1) | | | $ - | | | | $ 28,840 | | | | $ 27,200 | | | | $ 56,040 | | Jennifer Holden Dunbar | | | 36,500 | | | | 28,840 | | | | 27,200 | | | | 92,540 | | James H. Kropp | | | 39,500 | | | | 28,840 | | | | 27,200 | | | | 95,540 | | Sara Grootwassink Lewis | | | 50,500 | | | | 28,840 | | | | 23,800 | | | | 103,140 | | Gary E. Pruitt | | | 34,500 | | | | 28,840 | | | | 17,000 | | | | 80,340 | | Robert S. Rollo | | | 39,500 | | | | 28,840 | | | | 11,050 | | | | 79,390 | | Joseph D. Russell | | | - | | | | 28,840 | | | | - | | | | 28,840 | | Peter Schultz | | | 42,500 | | | | 28,840 | | | | 17,000 | | | | 88,340 | |
PS Business Parks • 2016 Proxy Statement • 21
| (1) | Ronald L. Havner, Jr., Chairman, Joseph D. Russell, Jr. and Maria R. Hawthorne are also directors but did not receive any cash compensation for service as directors during 2017. Ms. Hawthorne is also not eligible to receive equity awards for her service as director or participate in the retirement stock award program described above. Ms. Hawthorne’s compensation as CEO is set forth below beginning on page 44. |
Proposal 3:
| (2) | Reflects the fair value on the date of grant of option awards during 2017. As of December 31, 2017, each director as of such date had the following number of options outstanding: Ronald L. Havner, Jr., 16,205 of which 10,205 are vested; Jennifer Holden Dunbar, 19,994 of which 13,994 are vested; James H. Kropp, 18,273 of which 12,273 are vested; Sara Grootwassink Lewis, 11,068 of which 5,068 are vested; Gary E. Pruitt, 22,410 of which 16,410 are vested; Robert S. Rollo, 7,670 of which 0 are vested; Joe Russell, 2,000 of which 0 are vested; and Peter Schultz, 22,410 of which 16,410 are vested. For a more detailed discussion of assumptions used in the calculation of these amounts, refer to Note 11 to the Company’s audited financial statements for the fiscal year ended December 31, 2017, included in the Form10-K filed with the SEC on February 26, 2018. |
| (3) | All other compensation consists of dividend equivalents paid on vested retirement shares. |
The Board recommends voting FOR all director nominees. PS Business Parks • 2018 Proxy Statement • 25
Proposal 2: Advisory vote to approve executive compensation | | | | | Approve the Company’s compensation practices and principles and their implementation for 20152017 for the compensation of the Company’s named executive officers (our NEOs) as discussed and disclosed in the Compensation Discussion and Analysis (CD&A), the compensation tables and any related material contained in this proxy statement. | RECOMMENDATION: Vote FOR approval
Vote FOR approval |
PS Business Parks • 2018 Proxy Statement • 26
Proposal 2 Proposal 2 – Advisory vote to approve executive compensation Advisory Vote We provide shareholders an annual advisory vote to approve the compensation of our NEOs, also known as a“Say-on-Pay” proposal. More than 91% of the votes cast at our 2017 Annual Meeting were in favor of our executive compensation package. This approval, along with direct input received from shareholders regarding their votes, signaled strong shareholder support of the elements and amounts of compensation paid for both 2016 performance and the compensation opportunities established to reward long-term growth and performance. As a result, the Compensation Committee did not make any significant changes to the Company’s executive compensation program for 2017. We believe our strong performance in 2017 was driven by motivated NEOs incentivized by our strategic compensation program. Annual incentive bonus payments were tied to achieving at least a (i) 5.0% increase in Adjusted FAD¹ and (ii) 2.0% increase in Same Park Net Operating Income (Same Park NOI)². The equity-based component of the program provided NEOs two opportunities to receive restricted stock units (RSUs) under the LTEIP, for both (i) the achievement of targeted increases in internally calculated total return levels and (ii) the attainment of specified dividend yields over annual and cumulative four-year performance periods. ¹Adjusted FAD is anon-GAAP measure. Please refer to “2017 Annual Cash Incentive Thresholds and Targets” in the CDA section of the proxy statement. ² Refer to our Form 2017 Annual Report on Form10-K for information regarding our calculation of Same Park NOI. We believe these compensation targets fueled impressive 2017 performance that rewarded shareholders with a 10.3% TSR - a TSR that was 1.6% higher than the 2017 NAREIT Equity Index return of 8.7%. Our TSR also beat the NAREIT Equity Index and the S&P 500 index for the five-year,10-year and15-year periods ending December 31, 2017, averaging 13.0% in total annual return since 2002. The Board recommends that shareholders approve the compensation of the Company’s NEOs disclosed in the following CD&A and compensation tables. Although the shareholder vote on our executive compensation program is advisory and nonbinding on the Company, the Compensation Committee, which is responsible for designing and administering the compensation program, values the opinions expressed by shareholders. The Committee will consider and weigh heavily the outcome of the vote when making future compensation decisions. The Board recommends a vote FOR approval of our executive compensation as described in this proxy statement. PS Business Parks • 2018 Proxy Statement • 27
Proposal 2 Compensation Discussion and Analysis The following section summarizes our philosophy and objectives regarding the compensation of our NEOs, including how we determine the elements and amounts of executive compensation. This section should be read in conjunction with both its tabular compensation disclosures for NEOs for the year ended December 31, 2017, and the Compensation Committee Report, which can be found on page 43 of this proxy statement. Executive Summary The Compensation Committee’s goal for our executive compensation program is to hire, retain and motivate our senior management to achieve solid financial results and create long-term shareholder value. Our NEOs are paid based on what the Compensation Committee considers appropriate in view of individual and corporate performance, competitive levels, and our objective of aligning individual and shareholder interests to maximize the value of our shareholders’ investments in our securities over the long term. We believe that our compensation programs have been effective in helping the Company move towards its financial and operational goals. In general: | ● | | Our compensation program has helped establish a strong culture of performance, operational excellence and consistency, and enabled us to build a high-performing organization; |
PS Business Parks • 2016 Proxy Statement • 22
Proposal 3
PROPOSAL 3 – ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
Executive Summary
| ● | | We are again providing shareholders an advisory vote to approve the compensation ofa proven leader in our named executive officers, also known as a “say-on-pay” proposal. The Board has determined to hold these votes annually. The advisory vote is a non-binding vote on the compensation of our named executive officers as describedindustry in this proxy statement in the CD&A section, the tabular disclosure regarding such compensation and the Company’s accompanying narrative disclosure.At our 2015 Annual Meeting, more than 93% of the votes cast on our say-on-pay proposal were voted in favor of the proposal. Our Compensation Committee considered the results of this vote as strongly supporting the elements and amounts of compensation paid in respect of 2014 performance as well as the compensation opportunities afforded for long-termdelivering profitable growth and performance. As a result,enhanced distributions to shareholders;
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| ● | | Our compensation practices are consistent with the Compensation Committee did not make any significant changesfinancial discipline that has allowed us to the Company’s executiveachieve and maintain exceptional financial strength; and |
| ● | | Our business model and supporting compensation program for 2015.The Compensation Committee’s goal forare effective in achieving our executive compensation program is to hire, retain and motivate our senior management to achieve solid financial results and createobjective of building long-term shareholder value. We believe that our compensation programs have been effective in helping the Company move towards its financial and operational goals. For fiscal 2015, NOI increased 6.9% over 2014 (excluding assets held for sale or sold) through increases in weighted average occupancy, average rents and income from parks acquired during the latter half of 2014. In addition, during 2015, the Company sold four business parks aggregating 492,000 square feet for net proceeds of $41.2 million, which resulted in a net gain of $23.4 million. Additionally, as part of an eminent domain process, the Company sold five buildings, aggregating 82,000 square feet, at the Company’s Overlake Business Park located in Redmond, Washington, for $13.9 million, which resulted in a net gain of $4.8 million. With these sales, the Company has completed its stated objective of exiting non-strategic markets in Sacramento, California, Oregon and Arizona. Based on management’s 2015 achievements and our conservative compensation practices, the Board recommends that you again vote to approve our compensation program for executive officers.
In summary, compensation actions in 2015 for the named executive officers included:
base salaries for the named executive officers were maintained at 2014 levels except that Ms. Hawthorne’s base salary was increased in connection with her promotion to President of the Company;
based on management’s achievement of 2015 adjusted funds available for distribution (FAD) growth of 13.1% and Same Park NOI growth of 4.2%, bonuses paid to the named executive officer for 2015 performance were at 92% of their total targeted opportunity and, taking into account their individual performances, ranged from $230,000 to $567,500;
each of the named executive officers received grants in March 2016 for 2015 performance at the maximum level;
no stock options were awarded to the named executive officers during 2015; and
the Company did not generally provide any perquisites, tax reimbursements or change-in-control benefits to named executive officers that are not available to other employees.
We believe our compensation program for executive officers will help to continue to drive improved Company performance even if economic conditions remain challenging. We also believe these programs helped drive 2015 performance. Accordingly, the Board recommends that shareholders approve the compensation of the Company’s named executive officers as disclosed pursuant to the SEC’s compensation rules, including the Compensation Discussion and Analysis, the compensation tables and the narrative disclosures that accompany the compensation tables in this proxy statement.
The vote on our executive compensation programs is advisory and nonbinding on the Company. However, the Compensation Committee, which is responsible for designing and administering the Company’s executive compensation program, values the opinions expressed by the Company’s shareholders and will consider the outcome of the vote when making future compensation decisions.
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In fiscal year 2017, senior management successfully grew occupancy and average rental rates and continued to commit to a conservative balance sheet in minimizing the use of debt. Their efforts were directly responsible for the following results: | The Board of Directors recommends a vote FOR approval of our executive compensation as described in this proxy statement.
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PS Business Parks • 2016 Proxy Statement • 23
Proposal 3
Compensation Discussion and Analysis
The following section summarizes our philosophy and objectives regarding the compensation of our named executive officers, including how we determine the elements and amounts of executive compensation. This section should be read in conjunction with our tabular disclosures regarding the compensation of our named executive officers for the year ended December 31, 2015 and the report of the Compensation Committee, which can be found on page 33 of this proxy statement.
Executive Summary
Focus on Pay for Performance
The guiding principle of our executive compensation philosophy is to pay for performance and incentivize our executive officers to create long-term shareholder value. Performance bonuses and long-term, equity-based compensation vary based on the Company’s achievement of financial and operational goals and on each executive’s contributions to such achievement. This link between incentive payouts and achievement of goals has helped drive our strong and consistent performance year after year.
The Compensation Committee ties a substantial portion of each executive officer’s compensation to the achievement of corporate performance goals that the Board believes increase TSR over the long term. These typically include achievement of targeted growth in the Company’s adjusted FFO per common share, adjusted FAD per common share and Same Park NOI.
Emphasis on Future Pay Opportunity vs. Current Pay
The Compensation Committee strives to provide an appropriate mix of different compensation elements, including finding a balance among short- and long-term compensation. Cash payments primarily reward more recent performance, while equity awards incentivize our named executive officers to continue to deliver results over a longer period of time and also serve as a retention tool. The Company believes that a substantial portion of our named executive officers’ compensation should be at-risk, contingent on the Company’s operating and stock-price performance over the long-term.
The Compensation Committee’s evaluation of each named executive officer places strong emphasis on his or her contributions to the Company’s overall performance rather than focusing only on his or her individual business or function. The Compensation Committee believes that the named executive officers share the responsibility to support the goals and performance of the Company as a whole. Our financial highlights are noted in the table below and
demonstrate how we have continued to grow our business from the prior year.
2015 Company Results
The Company, under the more than decade-long leadership of our Chief Executive Officer, Mr. Russell, has provided shareholders with consistently strong total returns. In 2015, the Company’s management team continued to drive long-term growth results. Additionally, the Company enjoys one of the lowest leverage levels in the REIT industry. By virtue of historically low leverage, a consistently conservative financial posture and robust earnings capability, our credit rating was upgraded to “A-” by Standard & Poor’s in 2015.
Our Executive Officers
Same Park rental rates for executed deals increased by 5.1% over 2016 levels; Total rental income increased by $15.3 million, or 4.0%, over 2016 levels; NOI (excluding NOI from assets sold and held for development) and Same Park NOI both increased by 5.7% over 2016 levels; FAD increased by 2.2% over 2016 levels; Regular dividends increased by more than 13.3% over 2016 levels, from $3.00 to $3.40 per share; We maintained our S&P corporate credit rating of“A-,” and we continue to be one of the highest rated REITs, ranking higher than all of our public company competitors; and Our TSR of 10.3% was higher than the NAREIT Equity Index return of 8.7%. Based on these achievements and considerations, the Compensation Committee made the following compensation decisions for 2017: In connection with the departure of Mr. Russell in July 2016, the Compensation Committee determined in 2016 that he will still be entitled to receive 75% of any awards earned under the LTEIP with respect to the 2014 to 2017 cumulative performance period; Bonuses paid to the NEOs amounted to 90% of the total targeted opportunity, ranging from $319,500 to $405,000; and Each of the NEOs were issued RSU grants at the maximum level under the LTEIP. PS Business Parks • 2018 Proxy Statement • 28
Proposal 2 On the other hand, in keeping with our conservative compensation philosophy and practices: Base salaries were maintained at 2016 levels; No stock options were awarded; No perquisites were provided to our NEOs that were not also available to other employees generally; and No“gross-ups” or other tax reimbursement benefits were provided to our NEOs. We believe our compensation program for NEOs drove 2017 performance and will continue to drive improved Company performance. Accordingly, the Board recommends that shareholders approve the compensation of the Company’s NEOs, as disclosed pursuant to the SEC’s compensation rules, including the CD&A, the compensation tables and the narrative disclosures that accompany the compensation tables in this proxy statement. Our Executive Officers The following is a biographical summary of the current executive officer of the Company who is not also serving as a director: John W. Petersen, age 54, has been Executive Vice President and Chief Operating Officer since he joined the Company in December 2004. Prior to joining the Company, Mr. Petersen was Senior Vice President, San Jose Region, for Equity Office Properties (EOP) from July 2001 to December 2004, responsible for 11.3 million square feet of multi-tenant office, industrial and R&D space in Silicon Valley. Prior to working for EOP, Mr. Petersen was Senior Vice President with Spieker from 1995 to 2001, overseeing the growth of that company’s portfolio in San Jose, through acquisition and development of nearly three million square feet. Mr. Petersen is a graduate of The Colorado College in Colorado Springs, Colorado, and was recently the President of the National Association of Industrial and Office Parks, Silicon Valley Chapter. Executive Officer Diversity Although we do not have and do not believe there is a need for a formal policy concerning diversity of executive officers, the Board seeks to ensure that a diversity of different experiences, backgrounds and viewpoints are represented in our management. Currently, our CEO is female and Hispanic, and the Board and management continue to be focused and committed to increasing diversity in ongoing succession planning discussions. Compensation Philosophy, Objectives and Process Our compensation goals are to hire, retain and motivate our senior management to create long-term shareholder value. We pay our NEOs a mix of cash and long-term equity compensation that we consider appropriate in view of individual and corporate performance, competitive levels, and our objective of aligning individual and shareholder interests to maximize the value of our shareholders’ investments in our securities over the long term. In general, our compensation program for NEOs consists of: (1) a base salary; (2) short-term incentives in the form of annual cash bonuses: and, (3) long-termperformance-and time-based incentives in the form of equity awards, which may be RSUs or stock options that vest upon continued service or the achievement of defined performance goals. Annual and long-term incentive compensation for NEOs is designed to reward achievement of Company-wide performance goals by tying awards primarily to financial objectives such as growth in: (1) Adjusted FAD per common share; (2) Same Park NOI; (3) the Company’s internally calculated net asset value (NAV), which takes into account property-level performance, including capital expenditures; and, (4) dividend yields. Other corporate and individual objectives are also considered from time to time. PS Business Parks • 2018 Proxy Statement • 29
Proposal 2 Because each component of our compensation program is designed to accomplish or reward different objectives, historically and in 2017, the Compensation Committee determined the award of each component separately. Historically and in 2017, the Compensation Committee did not retain or rely on information provided by any third-party compensation consultant in setting compensation levels and awards for our NEOs. The Compensation Committee considers corporate, business unit and individual performance generally, and, particularly with respect to our CEO’s compensation, input from other Board members, including the Chairman of the Board. With respect to the compensation of the executive officers who report to our CEO, the Compensation Committee also considers the recommendations of our CEO. Focus on Pay for Performance The guiding principle of our executive compensation philosophy is to pay for performance and incentivize our executive officers to create long-term shareholder value. Performance bonuses and long-term, equity-based compensation vary based on the Company’s achievement of financial and operational goals and on each executive’s contributions to such achievement. This link between incentive payouts and achievement of goals has helped drive our strong and consistent performance year after year. Emphasis on Long-Term Compensation andAt-Risk Pay The Compensation Committee strives to provide an appropriate mix of different compensation elements, with an emphasis on long-term compensation. Cash payments primarily reward more recent performance, while equity awards serve as a retention tool and incentivize our NEOs to continue to deliver results over a longer period of time. In particular, the Compensation Committee specifically designed the LTEIP to focus management on the longer term by including a performance retesting component. This allows management to earn, upon achievement of performance targets over the four-year period covered by the plan, awards that were not granted in years in which the threshold annual award level was not achieved. This feature was not triggered from inception to conclusion of the four-year LTEIP performance period. In addition, the Compensation Committee believes that a substantial portion of our NEO’s compensation should beat-risk, contingent on the Company’s operating performance and growth in shareholder returns over the long-term. Assessment of Individual Contributions to Overall Performance The Compensation Committee’s evaluation of each NEO places strong emphasis on his or her contributions to the Company’s overall performance rather than focusing only on his or her individual business or function. The Compensation Committee believes that the NEOs share responsibility to support the goals and performance of the Company as a whole. Long-Term Financial Performance The Company has delivered strong financial performance over a sustained period of time, increasing FAD over the last six years, and total and Same Park NOI over the last seven years. The Compensation Committee believes that our compensation program, structured on the philosophy and objectives outlined above, is a key driver of the Company’s strong performance over the long term. The Compensation Committee made all final compensation decisions for NEOs in 2017, which were ratified by the Board thereafter. For more information on the Compensation Committee and its responsibilities, see “Corporate Governance and Board Matters – Committees of the Board of Directors – Compensation Committee” on page 20. PS Business Parks • 2018 Proxy Statement • 30
Proposal 2 Sound Governance Practices In designing our executive compensation around the philosophy and objectives outlined above, the Compensation Committee believes that our program encourages the highest performance standards and aligns the interests of our NEOs with the long-term interests of our shareholders by: | ● | | Keeping our NEOs focused on delivering industry-leading results over long periods of time, aligned with the Company’s business model; |
| ● | | Aligning the financial gains and losses of each NEO with the long-term experience of shareholders; and |
| ● | | Supporting retention and continuity of leadership. |
At the same time, the following features in our program discourage inappropriate risk taking: | ● | | Extensive stock holding requirements; |
| ● | | Total compensation that is heavily weighted towards equity with long vesting periods; |
| ● | | No employment contracts orchange-in-control arrangements; |
| ● | | No guaranteed bonuses other than for new hires; and, |
| ● | | No additional grants to balance changes in value of prior grants. |
Elements of Compensation To achieve our compensation objectives, we believe that total executive compensation should be balanced among the following components: (1) a competitive annual base salary; (2) short-term performance-based incentive opportunities in the form of bonuses that are generally paid in cash; and, (3) long-term performance-based incentive opportunities that correlate with shareholders’ long-term financial objectives. Annual Base Salary Base salaries provide a competitive level of fixed compensation to attract and retain the best possible executive talent. We establish base salaries for NEOs at levels sufficient to achieve our hiring and retention goals. However, a significant portion of the total annual cash compensation such executives can earn consists of performance-based awards through our annual performance-based cash bonus program. Base salaries are set based on factors that include competitive conditions in the local market, an individual’s performance and responsibilities and the business judgment of the members of the Compensation Committee. The factors considered also include input from other Board members, including the Chairman of the Board, particularly with respect to our CEO, and the recommendations of our CEO for the other NEOs. In general, the Compensation Committee reviews base salaries every two years for the NEOs. PS Business Parks • 2018 Proxy Statement • 31
Proposal 2 Short-Term Performance-Based Bonus Awards Our annual performance-based cash bonus program provides an opportunity to reward NEOs for performance during the fiscal year. It is generally based on the achievement of corporate and individual performance goals, or a combination of the two. The corporate performance goals relate to one or more of the following financial factors: growth in Adjusted FAD; growth in Same Park rental income; growth in Same Park NOI; and/or, the maintenance of targeted levels of property-level returns after capitalized transactional expenditures. Achievement of other operational and financial goals may also be included from time to time. Individual performance goals vary from year to year, depending on management’s and the Compensation Committee’s determination of the most effective areas of focus in driving shareholder return. We have had a long history of setting annual incentive award targets at around one times base salary, but this does not preclude the Compensation Committee from approving higher or lower annual incentive awards. The actual awards are determined by the Compensation Committee after determining whether the targeted corporate performance metrics have been achieved and, with respect to individual and other goals, considering the recommendations of our CEO with respect to the performance of the other NEOs. In addition, the Compensation Committee solicits the views of the Chairman and the Board, particularly with respect to the performance of our CEO. The Compensation Committee has the discretion to increase or reduce the amount of any actual award based on those factors that the Compensation Committee considers appropriate. Long-Term Performance and Time-Based Equity Compensation Equity awards are long-term incentives designed to reward long-term growth in shareholder returns. We believe these awards help retain executives because they achieve their maximum value only if the price of our Common Stock increases after the date of grant and the executive continues to be employed by us for a period of years. In general, equity awards are granted only after the Compensation Committee has determined that the applicable performance goals have been achieved. Granted awards vest ratably in installments over the period of time, and pursuant to other terms and conditions, specified in the grant or applicable compensation plan. The Compensation Committee has generally granted only RSUs and stock options, and has the discretion to award a mix of both to executive officers. Stock Options Stock options have value solely to the extent that the price of our Common Stock is greater than the exercise price of the option at the time of exercise. Options help us retain executive officers in that options vest over a multi-year period and achieve their maximum value to the executive only if he or she remains in the Company’s employ for a period of years. Stock options are granted with an exercise price of not less than 100% of the fair market value of our Common Stock on the date of grant, which ensures that the executive officer does not profit from the option unless the price of our Common Stock increases after the grant date. The Compensation Committee determines stock option award levels to the NEOs in its discretion, considering input from other Board members with respect to stock option awards to our CEO, recommendations of our CEO with respect to awards to the other NEOs, the executive’s responsibilities and performance and equity awards at other companies, including REITs, of a comparable size and market capitalization. PS Business Parks • 2018 Proxy Statement • 32
Proposal 2 RSUs RSUs increase in value as the value of our Common Stock increases, and vest over time, provided that the executive officer remains employed at the Company. Awards of RSUs serve the Compensation Committee’s objectives of retaining executive officers and other employees and motivating them to advance the interests of the Company and its shareholders. Unlike stock options, RSUs retain some value even in persistently declining markets, and may be particularly important to the Company during difficult market conditions because of their value in retaining executive talent at times when we may need it most. In addition, to better align the interests of our NEOs with those of our shareholders, vested RSUs, but not vested options, count toward the determination of whether the respective stock ownership guidelines have been satisfied. The Compensation Committee does not set awards based on a fixed weighting between stock options and RSUs. However, it may determine not to award stock options or RSUs during certain periods. Equity Grant Practices Equity grants to all of our executive officers, including the NEOs, must be approved by the Compensation Committee, which consists entirely of independent directors. | ● | | Grants occur only at meetings or upon written actions of the Board or the Compensation Committee (including telephonic meetings), and are made effective as of the date of the meeting or written action, or a future date if appropriate (such as in the case of a new hire); |
| ● | | Equity awards to executive officers are not timed in coordination with the release of materialnon-public information. Awards are also subject to the terms of our 2012 Equity and Performance-Based Incentive Compensation Plan (the 2012 Plan); |
| ● | | Historically, equity awards to executive officers have vested over an extended period, which the Compensation Committee believes furthers the goals of retention and motivation over the long-term; |
| ● | | With respect to awards of performance-based RSUs to the NEOs other than our CEO, the Compensation Committee determines award levels based on recommendations from our CEO, taking into consideration each individual’s responsibilities and performance, as discussed in more detail below; |
| ● | | In 2017, the Compensation Committee approved a pool of 5,000 RSUs to be granted under authority of Ms. Hawthorne, the Company’s President and CEO, to new employees or employees promoted by the Company who are not executive officers of the Company thatCompany. These awards are typically granted on the first trading day of the month following the hire or promotion date, and vest in equal annual installments over five years; and |
| ● | | Equity grants to othernon-executive officers may be made at other times during the year, but are not also serving as a director:Maria R. Hawthorne, age 56, was promoted to Presidenttimed in coordination with the release of the Companymaterialnon-public information. These awards typically vest in August 2015. Ms. Hawthorne most recently served as Executive Vice President, Chief Administrative Officer of the Company from July 2013 to August 2015. Prior to that, Ms. Hawthorne served as the Company’s Executive Vice President, East Coast from February 2011 to July 2013. Ms. Hawthorne served as the Company’s Senior Vice President from March 2004 to February 2011, with responsibility for property operations on the East Coast, which included Northern Virginia, Maryland and South Florida. From June 2001 through March 2004, Ms. Hawthorne was a Vice President of the Company, responsible for property operations in Virginia. From July 1994 to June 2001, Ms. Hawthorne was a Regional Manager of the Company in Virginia. And from August 1988 to July 1994, Ms. Hawthorne was a General Manager, Leasing Director and Property Manager for American Office Park Properties. Ms. Hawthorne earned a Bachelor of Arts Degree in International Relations from Pomona College.
John W. Petersen, age 52, has been Executive Vice President and Chief Operating Officer since he joined the Company in December 2004. Prior to joining the Company, Mr. Petersen was Senior Vice President, San Jose Region, for Equity Office Properties (EOP) from July 2001 to December 2004, responsible for 11.3 million square feet of multi-tenant office, industrial and R&D space in Silicon Valley. Prior to EOP, Mr. Petersen was Senior Vice President with Spieker from 1995 to 2001, overseeing the growth of that company’s portfolio in San Jose, through acquisition and development of nearly three million square feet. Mr. Petersen is a graduate of The Colorado College in Colorado Springs, Colorado, and was recently the President
equal annual installments over five years. |
PS Business Parks • 2018 Proxy Statement • 33
Proposal 2 PS Business Parks • 2016 Proxy Statement • 24
Proposal 3
of National Association of Industrial and Office Parks, Silicon Valley Chapter.
Edward A. Stokx, age 50, a certified public accountant, has been Chief Financial Officer and Secretary of the Company since December 2003 and Executive Vice President since March 2004. Mr. Stokx has overall responsibility for the Company’s finance and accounting functions. In addition, he has responsibility for executing the Company’s financial initiatives. Mr. Stokx joined Center Trust, a developer, owner, and operator of retail shopping centers in 1997. Prior to his promotion to Chief Financial Officer and Secretary in 2001, he served as Senior Vice President, Finance and Controller. After Center Trust’s merger in January 2003 with another public REIT, Mr. Stokx provided consulting services to various entities. Prior to joining Center Trust, Mr. Stokx was with Deloitte and Touche from 1989 to 1997, with a focus on real estate clients. Mr. Stokx earned a Bachelor of Science degree in Accounting from Loyola Marymount University.
Long-Term Financial Performance
The Company has delivered strong financial performance over a sustained period of time, increasing FAD over the last four years, and total and Same Park NOI over the last five years. Our performance in 2015 continues to support the Compensation Committee’s belief that these three metrics are the key drivers of total return for our shareholders.
Total Shareholder Return
We believe our compensation program for executive officers helped drive our strong performance in 2015, rewarding the Company’s shareholders with a 13% TSR during 2015, which was significantly higher than both the NAREIT Equity Index return of 2.8% and the S&P 500 return of 1.4% for the year. In addition, our TSR beat the NAREIT Equity Index and the S&P 500 indices for the 20-year period ending December 31, 2015, averaging 13% in TSR per year since 1995 vs. 8% for the S&P 500 Index and 11% for the NAREIT Equity Index. The exhibit below shows our TSR expressed as cumulative return to shareholders since December 31, 2010. As illustrated in the exhibit, every $100 invested in PS Business Parks since December 31, 2010 would have been valued at $185.96 as of December 31, 2015.
| | | Sustained Shareholder Value (TSR)1
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1 | Total Shareholder Return assumes reinvestment of dividends.
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PS Business Parks • 2016 Proxy Statement • 25
Proposal 3
2015 Executive Compensation Highlights
2015 Company Performance. During 2015, most markets continued to reflect favorable conditions allowing for improving occupancy and rental rates, and our management team was able to deliver solid results on several fronts. For fiscal year 2015, total net operating income (NOI) increased 6.9% over 2014 (excluding assets sold) through increases in weighted average occupancy, average rents and income from parks acquired during the latter half of 2014. In addition, during 2015, the Company sold four business parks aggregating 492,000 square feet for net proceeds of $41.2 million, which resulted in a net gain of $23.4 million. And as part of an eminent domain process, the Company sold five buildings, aggregating 82,000 square feet, at the Company’s Overlake Business Park located in Redmond, Washington, for $13.9 million, which resulted in a net gain of $4.8 million. With these sales, the Company has completed its stated objective of exiting non-strategic markets in Sacramento, California, Oregon and Arizona.
2015 Executive Compensation. The Compensation Committee’s decisions with respect to 2015 compensation are discussed in detail below. To summarize the Committee’s decisions:
base salaries for the named executive officers were maintained at 2014 levels, except that Ms. Hawthorne’s base salary was increased in connection with her promotion to President of the Company;
based on management’s achievement of 13.1% growth in 2015 adjusted FAD and 4.2% growth in Same Park NOI, bonuses paid to the named executive officers for 2015 ranged from 84% to 100% of their total targeted opportunity ($230,000 to $567,500);
annual total return of 13.9%, as computed under the Company’s 2014-2017 long term equity incentive program (the LTEIP), was achieved at maximum level under the LTEIP. As a result, 59,000 performance-based RSU awards were granted to the named executive officers in March 2016 for 2015 performance; and
no stock options were awarded to the named executive officers during 2015, and the Committee does not anticipate making any stock option grants to the named executive officers during the remaining term of the LTEIP, which provides for awards of RSUs if targets/conditions are achieved.
2016 Compensation Outlook.Although the Committee believes the Company is well-positioned to meet the challenges, the operating environment for commercial real estate in 2016 continues to be challenging. Given these expectations, the Compensation Committee met in February and March 2016 and made the following decisions for 2016 executive officer compensation:
executive officer base salaries are to be maintained at 2015 levels;
2016 bonus target amounts are set at 100% of base salary for each executive officer if performance targets are achieved;
the threshold for payment of bonuses is again tied to achieving targeted levels of growth in Same Park NOI and adjusted FAD; in determining whether the bonus paid is to be at, above, or below, the target bonus amount, the Compensation Committee will solicit the views of the Chief Executive Officer (with respect to the other named executive officers) and the Chairman and the Board (with respect to the Chief Executive Officer), taking into account the performance of each named executive officer, including achievement of individual performance goals and other factors deemed relevant by the Compensation Committee; and
for purposes of Section 162(m) (Section 162(m)) of the Internal Revenue Code of 1986, as amended (the Code), if applicable, all named executive officer bonuses are capped at five times base salary.
PS Business Parks • 2016 Proxy Statement • 26
Proposal 3
Our Key Governance Practices | | |
Our executive compensation program is designed to align executive performance with the long-term interests of shareholders and is regularly reviewed to ensure that our compensation policies and practices continue to support the needs of our business, create value for shareholders and reflect sound governance practices. Below is a summary of our key governance practices as they relate to executive compensation: | ü | Align pay with performance by putting a substantial portion of our NEOs’ compensation “at risk.” Almost 82% of 2015 named executive officer
| ✓ | Align pay with performance by putting a substantial portion of our NEOs’ compensation “at risk.” Over 70% of 2017 NEO realized compensation was tied to the achievement of performance goals that are key drivers to the success of our business. |
| ü | Promote retention and increase long-term shareholder value.Equity award grants to named executive officers vest over a time period of at least 4 years.
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| ü | Mitigate undue risk in our executive compensation program.Financial targets for bonuses typically are based on multiple metrics to avoid inordinate focus on any particular metric. In addition, the Board and management do not establish any earnings targets for cash bonus awards, and management does not give earnings guidance to analysts. Also, bonus payments are capped at a maximum payout level.
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| ü | Stock ownership guidelines for executive officers. In 2015, the Company implemented minimum stock ownership guidelines of 5X annual base salary for our CEO and 3X annual base salary for all of our other named executive officers. Our executive officers have until April 2020 to meet these requirements.
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| ü | Pay a high percentage of executive compensation in equity. Our executive officers receive a higher percentage of their total compensation in equity, thus aligning their interests more closely with those of our shareholders, than their peers in the industry.
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| ü | Clawback of equity awards. Awards granted pursuant to our 2012 Equity and Performance-Based Incentive Compensation Plan (the 2012 Plan) are subject to mandatory repayment by the grantee to the Company if the grantee is or becomes subject to any clawback requirement under applicable laws.
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| x | No employment, “golden parachute” or severance agreements with our NEOs.
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| x | No guaranteed bonus arrangements with our NEOsexcept in connection with new hires as inducement to attract the best candidates.
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| x | No repricing of stock options.
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| x | No excessive perquisites. Except for perquisites that are available to employees generally such as holiday emoluments, anniversary awards and contributions to the 401(k) Plan, the Company does not offer perquisites to our named executive officers.
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| x | No tax gross ups.The Company does not provide “gross-ups” or other reimbursements of golden parachute or other taxes nor does it provide change in control benefits to its executive officers that are not available to other employees generally.
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| x | No supplemental retirement plans. The Company does not provide any nonqualified deferred compensation or supplemental retirement benefits to our executives, other than providing executives the opportunity to elect to defer the receipt of shares that otherwise would be paid on vesting of certain RSUs.
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PS Business Parks • 2016 Proxy Statement • 27
Proposal 3
Executive Officer Stock Ownership Guidelines
The Board implemented stock ownership guidelines for executive officers effective April 28, 2015. Each executive officer is expected to beneficially own Common Stock equal in market value to a specified multiple of his or her annual base salary. The guideline for the Chief Executive Officer is five times his or her base salary and for the other executive officers is three times his or her base salary. While none of our named executive officers has met his/her stock ownership requirement as of the date of this proxy statement, they have until April 2020 to do so.
Only shares of Common Stock (i) owned by the executive, (ii) owned jointly by him/her and his/her spouse, (iii) owned by his/her spouse, (iv) held by him/her in the 401(k) Plan and (v) held in custodial accounts or trust for him/her or for his/her spouse and/or children are counted for determining compliance with these guidelines. Unvested time-based RSUs and in-the-money value of vested options are NOT counted for determining compliance with these guidelines.
Executive Compensation Philosophy and Objectives
Our compensation goals are to hire, retain and motivate our senior management to create long-term shareholder value. We pay our named executive officers a mix of cash and long-term equity compensation that we consider appropriate in view of individual and corporate performance, competitive levels, and our objective of aligning individual and shareholder interests to maximize the value of our shareholders’ investments in our securities.
In general, our compensation program for named executive officers consists of (1) payment of a base salary, (2) short-term incentives in the form of annual cash bonuses and (3) long-term incentives in the form of equity
awards, which may be restricted stock units or stock options, and vest upon continued service or the achievement of defined performance goals. Annual and long-term incentive compensation for named executive officers is designed to reward achievement of Company-wide performance goals by tying awards primarily to financial objectives such as growth in FAD, Net Asset Value (NAV), Same Park NOI, the performance of acquired properties and the achievement of targeted levels of property-level returns after capitalized transactional expenditures. Other corporate and individual objectives are also considered from time to time.
Because each component of our compensation program is designed to accomplish or reward different objectives, historically and in 2015, the Compensation Committee determined the award of each component separately. Historically and in 2015, the Compensation Committee did not retain or rely on information provided by any third-party compensation consultant in setting compensation levels and awards for our named executive officers.
The Compensation Committee considers corporate, business unit and individual performance generally, and, particularly with respect to Mr. Russell’s compensation, input from other Board members, including the Chairman of the Board. With respect to the compensation of the executive officers who report to Mr. Russell, the Compensation Committee also considers the recommendations of Mr. Russell.
The Compensation Committee made all final compensation decisions for named executive officers in 2015.
For more information on the Compensation Committee and its responsibilities, see “Corporate Governance and Board Matters — Compensation Committee” on page 14.
PS Business Parks • 2016 Proxy Statement • 28
Proposal 3
Elements of Compensation
To achieve our compensation objectives, we believe that total executive compensation should be balanced among the following components:
● | | Short-term performance bonus awards; and
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● | | Long-term, equity-based incentive compensation.
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In general, our compensation program for executive officers consists of (1) payment of an annual base salary, (2) short-term incentive opportunities in the form of bonuses that are generally paid in cash and (3) long-term
incentive opportunities in the form of equity awards, which typically include RSU awards which generally vest upon continued service.
The following charts depict for Mr. Russell, our Chief Executive Officer, and for our four other named executive officers, the split between (i) compensation that is tied to the achievement of performance goals consistingthat are key drivers to the success of our business.
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| ✓ | Promote retention and increase long-term equity incentiveshareholder value. Equity award grants to NEOs vest ratably over a time period of at least 4 years. |
| ✓ | Mitigate undue risk in our executive compensation inprogram. Financial targets for bonuses typically are based on multiple metrics to avoid inordinate focus on any particular metric. In addition, the formBoard and management do not establish any earnings targets for cash bonus awards, and management does not give earnings guidance to analysts. Also, bonus payments are capped at a maximum payout level. |
| ✓ | Stock ownership guidelines for executive officers.In 2015, the Company implemented minimum stock ownership guidelines of RSUs and short-term non-equity incentive compensation in the form of cash bonuses and (ii) compensation that is not tied to performance goals, consisting of5X annual base salary and all other compensation. We believe that paying a significantly larger percentage of total compensation tofor our CEO and 3X annual base salary for all of our other NEOs. All of our NEOs who have been with the Company at least five years exceed his/her stock ownership requirement. |
| ✓ | Pay a high percentage of executive compensation in performance-based cash andequity. Our NEOs receive a higher percentage of their total compensation in equity, awards, as depicted below, properly alignsthus aligning their interests more closely with those of our shareholders, than their peers in the industry. |
| ✓ | Clawback of equity awards. Awards granted pursuant to our 2012 Plan are subject to mandatory repayment by the grantee to the Company if the grantee is or becomes subject to any clawback requirement under applicable laws. |
 What WeDon’t Do
| No employment or “golden parachute” agreements with our NEOs. |
| No guaranteed bonus arrangements with our NEOsexcept in connection with new hires as inducement to attract the best candidates. |
| No repricing of stock options. |
| No excessive perquisites.Except for perquisites that are available to employees generally such as holiday emoluments, anniversary awards and contributions to the 401(k) Plan, the Company does not offer perquisites to our NEOs. |
| No tax gross ups.The Company does not provide“gross-ups” or other reimbursements of golden parachute or other taxes to its NEOs. |
| No supplemental retirement plans.The Company does not provide any nonqualified deferred compensation objectives.or supplemental retirement benefits to our NEOs, other than providing executives the opportunity to defer receipt of shares that otherwise would be paid on vesting of certain RSUs. |
PS Business Parks • 2018 Proxy Statement • 34
Proposal 2 Executive Officer Stock Ownership Guidelines The Board implemented stock ownership guidelines for NEOs effective April 28, 2015. Each NEO is expected to beneficially own Common Stock equal in market value to a specified multiple of his or her annual base salary. The guideline for the CEO is five times his or her base salary and for the other NEOs is three times his or her base salary. All of our NEOs who have been with the Company at least five years exceed his/her stock ownership requirement. Only shares of Common Stock (1) owned by the executive, (2) owned jointly by him/her and his/her spouse, (3) owned by his/her spouse, (4) held by him/her in the 401(k) Plan and (5) held in custodial accounts or trust for him/her or for his/her spouse and/or children are counted for determining compliance with these guidelines. Unvested time-based RSUs andin-the-money value of vested options are NOT counted for determining compliance with these guidelines. 2017 Executive Compensation 2017 Company Performance Execution on Strategy.During 2017, management successfully executed on the Company’s strategy of improving occupancy and rental rates. Optimized occupancy gives us the ability to adjust rents and transaction costs aggressively in response to changing conditions, thereby accelerating company financial performance and operating metrics. In addition, we continued to commit to a conservative balance sheet in minimizing the use of debt. Management’s successful execution on these strategies enabled the Company to deliver solid results on several fronts during the year, including the following: Key Financial Metrics | ● | | Management’s initiatives to grow occupancy over 2016 levels, continued to result in growing rental rates on executed deals, increasing Same Park rates by 5.1% over 2016 levels; |
| ● | | NOI (excluding NOI from assets sold and held for development) and Same Park NOI both increased |
| | by 5.7% over 2016 levels, through increases in weighted average occupancy, average rents, reductions in cost and income from parks acquired in 2016; and |
| ● | | FAD increased by 2.2% over 2016 levels. |
Strong Dividend Growth and Financial Discipline | ● | | Regular dividends increased by more than 13.3% over 2016 levels, from $3.00 to $3.40 per share; |
| ● | | The Company continues to enjoy one of the lowest leverage levels in the REIT industry; |
| ● | | By virtue of our historically low leverage, a consistently conservative financial posture and robust earnings capability, we maintained our S&P corporate credit rating of“A-”; and |
| ● | | We continue to be one of the highest rated REITs by S&P, higher than all of our public company competitors. |
PS Business Parks • 2018 Proxy Statement • 35
Proposal 2 Total Shareholder Return.We believe our compensation program for executive officers helped drive our strong performance in 2017, rewarding the Company’s shareholders with a 10.3% TSR during 2017. This was higher than the NAREIT Equity Index return of 8.7%. In addition, our TSR beat the NAREIT Equity Index and the S&P 500 indices for the15-year period ending December 31, 2017, averaging 13.0% in TSR per year since 2002. The exhibit below shows our TSR expressed as cumulative return to shareholders since December 31, 2012, and illustrates that $100 invested in PS Business Parks on December 31, 2012 would have been valued at $227.29 as of December 31, 2017. 
*TSR assumes price appreciation plus reinvestment of dividends PS Business Parks • 2018 Proxy Statement • 36
Proposal 2 FAD and Shareholder Distributions.In 2017, we grew our FAD per common share by 2.2% over 2016 levels, which increased our capacity for investments in the business. Annual dividends per common share paid in 2017 also grew by more than 13.3%. The following chart shows the growth achieved by PS Business Parks in these two metrics over a five-year period. 
*Refer to Appendix A to this Proxy Statement for reconciliation and other information. Pay Ratio Disclosure Presented below is the ratio of annual total compensation of our President and CEO, Maria R. Hawthorne (as disclosed in the Summary Compensation Table below in this proxy statement), to the annual total compensation (FormW-2 wages) of our median employee (excluding Ms. Hawthorne). The ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K under the Securities Exchange Act of 1934, as amended (the Exchange Act). We selected the median employee based on the Company’s 158 employees as of December 31, 2017. In identifying our median employee, we calculated the annual total compensation of each employee as of December 31, 2017 based on FormW-2 information. We did not apply anycost-of-living adjustments as part of the calculation. The 2017 annual total compensation for our CEO, as disclosed in the Summary Compensation Table below in this proxy statement, and as determined under Item 402 of RegulationS-K, was $866,601. The 2017 annual total compensation for our median employee, as determined under Item 402 of RegulationS-K, was $73,559. The ratio of our CEO’s annual total compensation to our median employee’s total compensation for fiscal year 2017 is 11.78 to 1. Factors Considered by the Compensation Committee in its Compensation Decisions for 2017 2017 Advisory Vote to Approve Executive Compensation.We believe our executive compensation program is appropriately structured to achieve our objective of driving growth in long-term shareholder value. | | |  | |  PS Business Parks • 2018 Proxy Statement • 37
Proposal 2 Role of Management and Compensation Committee Meetings.In general, our CEO attends all meetings of the Compensation Committee at which (i) compensation of the other NEOs or other employees is discussed and/or (ii) Company-wide compensation matters, such as the consideration of new equity plans, are discussed. Our CEO does not vote on items before the Compensation Committee. As discussed in more detail below, the Compensation Committee solicits our CEO’s views on the performance of the executive officers reporting to her, including each of the other NEOs. In general, the Compensation Committee sets the compensation for the other NEOs after consideration of the recommendations prepared by our CEO with respect to appropriate amounts to reward and incentivize each NEO. The Compensation Committee solicits the views of the Chairman of the Board and other Board members, particularly with respect to compensation for our CEO. The Compensation Committee met five times during 2017. Ms. Hawthorne attended a portion of most of the meetings but did not participate in the deliberations of the Compensation Committee with respect to setting her own compensation. 2017 Compensation Targets The Compensation Committee designed its incentive compensation programs for 2017 to focus management on growing our business. 2017 Annual Cash Incentive Thresholds and Targets.In February 2017, the Compensation Committee met to determine the appropriate performance thresholds and target amounts for 2017 annual incentive bonuses in order to properly incentivize senior management with respect to 2017 performance. The thresholds represent the minimum performance levels that must be achieved in order for senior management to be qualified for awards of 2017 annual incentive bonuses at the target amounts. After consideration of the Company’s strategic goals and input from Ms. Hawthorne and other Board members, including the Chairman of the Board, the Compensation Committee established the following as the performance thresholds for payment of senior executive bonuses: (i) at least 5.0% growth in 2017 Adjusted FAD from 2016 Adjusted FAD and (ii) at least 2.0% growth in 2017 Same Park NOI from 2016 Same Park NOI. These financial metrics were selected by the Compensation Committee because of their importance to both the PS Business Parks senior executive team and to investors. And consistent with our long history of setting annual incentive award targets at around one time base salary (although this does not preclude the Compensation Committee from approving higher or lower annual incentives awards), 2017 bonus target amounts were established at 100% of base salary for each executive officer. For purposes of determining performance metrics, Adjusted FAD is calculated after FAD is computed. FAD is computed by adjusting consolidated Funds From Operations (FFO) for recurring capital improvements, which the Company defines as those costs incurred to maintain the assets’ value, tenant improvements, lease commissions, straight-line rent, stock compensation expense, impairment charges, amortization of lease incentives and tenant improvement reimbursements,in-place lease adjustment and the impact of EITF TopicD-42. Consolidated FFO is computed as net income, before depreciation, amortization, minority interest income, gains or losses on asset dispositions and nonrecurring items. For purposes of calculating the FAD bonus target amounts, 2017 FAD was adjusted by a number of factors, including adjustments made to neutralize the impact of: (i) maintenance capital expenditures; (ii) income, capital and expenses incurred in connection with asset dispositions in 2017; and, (iii) cash paid for taxes in lieu of shares. PS Business Parks • 2018 Proxy Statement • 38
Proposal 2 In determining whether the bonus paid is to be at, above or below the target bonus amount, the Compensation Committee will solicit the views of the CEO (with respect to the other NEOs) and the Chairman and the Board (with respect to the CEO), taking into account the performance of each NEO, including achievement of individual performance goals and other factors deemed relevant by the Compensation Committee. In addition, the Compensation Committee set the maximum 2017 bonus payout for NEOs at five times base salary in consideration of Section 162(m). However, this does not represent a potential award that the Compensation Committee has historically granted, or intends to grant, in its discretion. 2017 Equity-Based Compensation Targets. The equity-based compensation opportunity afforded our executive officers in 2017 was limited to RSU awards that might be earned under the LTEIP that was adopted in March 2014 and expired at December 31, 2017. Under the LTEIP, NEOs were eligible to receive two opportunities to earn awards of RSUs if the Company achieved targeted increases in total return (defined as growth in NAV, which takes into account property-level performance, including capital expenditures, together with dividend yields) over annual and cumulative four-year performance periods. These return levels were determined by the Compensation Committee to be challenging but achievable. The maximum number of RSUs available to award to NEOs over the four-year performance period under the LTEIP were 263,750. Annual RSU awards were made following performance periods, and a cumulative RSU award at the conclusion of the four-year performance period was recently made in March 2018 based on total return achieved over the 2014 to 2017 period. Executive officers had the opportunity to earn up to 20% of the potential RSU awards made under the LTEIP for each year in the four-year performance period if the maximum performance level was achieved for that year, with the actual number of RSUs awarded each year determined based on achievement of threshold, target and maximum levels of total return. The final 20% of the potential RSU awards were established to be allocated to the cumulative award at the end of the performance period. Awards vest ratably over four years beginning on the date of the award. Participants received dividends on RSUs during the vesting period. Only if the Company’s total return did not meet the threshold performance level for any year in the performance period, a number of RSUs equal to the maximum number of RSUs available for that year were added to the cumulative pool of RSUs available for award at the end of the performance period (i.e., if the threshold level was achieved for any performance period, any shortfall between the number of RSUs at the maximum award level and what was actually earned for that performance period were forfeited and not added to the available pool for the cumulative performance period). This performance retesting component was designed by the Compensation Committee to focus management on the longer four-year time frame, in keeping with the Company’s compensation philosophy. However, no RSUs were added to the cumulative award over the course of the four-year performance period of the LTEIP, as the Company achieved at least the threshold award level every year of the LTEIP term. PS Business Parks • 2018 Proxy Statement • 39
Proposal 2 2017 Compensation Decisions In February 2018, the Compensation Committee considered that (i) Adjusted 2017 FAD was $175.6 million, a 6.6% increase over 2016, (ii) 2017 Same Park NOI was $14.5 million, a 5.7% increase over 2016 and (iii) the highest total return level under the LTEIP was achieved for 2017. As a result, the Compensation Committee made the following decisions with respect to 2017 compensation: | ● | | Base salaries remain unchanged from 2015 levels except for Ms. Hawthorne, whose base salary was previously increased to $450,000 in 2016 in connection with her promotion to CEO; |
Annual Base Salaries. Base salaries provide
| ● | | As a base levelresult of monthly income for our named executive officers. We believe that providing a fixed level of guaranteed cash compensation is important to allow us to attract and retain executives. We establish base salaries for named executive officers at levels sufficient to achieve our hiring and retention goals. However, a significant portion of the total annual cash compensation such executives can earn consists of performance-based awards through our annual cash bonus program.Base salaries are set based on factors that include competitive conditions in the local market, an individual’s performance and responsibilities and the business judgment of the members of the Compensation Committee. The factors considered also include input from other Board members, including the Chairman of the Board, particularly with respect to Mr. Russell’s salary, and the recommendations of Mr. Russell for the other named executive officers. In general, the Compensation Committee
reviews base salaries every two years for the named executive officers.
Bonuses. Our annual incentive cash bonus program provides an opportunity to reward named executive officers for performance during the fiscal year. It is generally based on themanagement’s achievement of corporate, or a combination of corporate and individual, performance goals. The corporate performance goals generally relate, in any given year, to one or more of the following financial factors:6.6% growth in 2017 Adjusted FAD growth in Same Park revenue,and 5.7% growth in Same Park NOI, and/orbonuses paid to the maintenanceNEOs for 2017 amounted to 90% of their total targeted levelsopportunity ($319,500 to $405,000);
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| ● | | Annual total return as computed under the LTEIP (growth in NAV, which takes into account property-level performance, including capital expenditures, together with dividend yields) was 14.1%, qualifying management for grants of property-level returns after capitalized transactional expenditures. Achievement of other operational and financial goals may also be included from timeRSUs at the maximum level under the plan. As a result, 48,000 performance-based RSU awards were granted to time. Individualthe NEOs in March 2018 for performance goals vary from year to year depending on management’sin 2017 and the Compensation Committee’s view of what is required.Target annual incentive bonus amounts are set for each named executive officer typically at 100% of base salary.
2014-2017 period; and |
PS Business Parks • 2016 Proxy Statement • 29
Proposal 3
The actual awards are determined by the Compensation Committee after determining whether the targeted corporate performance metrics have been achieved and, with respect to individual and other goals, considering the recommendations of the Chief Executive Officer with respect to the performance of the other named executive officers. In addition, the Compensation Committee solicits the views of the Chairman and the Board, particularly with respect to the performance of the Chief Executive Officer. The Compensation Committee has the discretion to increase or reduce the amount of any actual award based on those factors that the Compensation Committee considers appropriate.
Equity-Based Compensation. Equity awards of RSUs or stock options are long-term incentives designed to reward long-term growth in the price of, and in the case of RSUs, dividends paid on, our common stock. Both types of equity awards help retain executives because they achieve their maximum value only if the executive continues to be employed by us for a period of years and their value is enhanced if the price of our common stock increases after the date of grant. RSU awards may also offer value during difficult market conditions because they retain some value even in declining markets, which may enhance their retention value at a time when we may most need executive talent. Stock options have value solely to the extent that the price of our common shares increases after the date of grant during the term of the option. Stock options are granted with an exercise price of not less than 100% of the fair market value of our common stock on the date of grant so that the executive officer may not profit from the option unless the stock price increases.
| ● | | No stock options were awarded to the NEOs during 2017. |
In evaluating management’s performance, the Compensation Committee placed significant weight on their strategic decisions that correctly anticipated changing economic conditions, their successful execution on that strategy and their unwavering financial discipline. Our management team, with Ms. Hawthorne as its leader in particular, successfully oversaw and navigated the Company through these challenges. And Ms. Hawthorne did so while serving in a dual capacity as interim Chief Financial Officer since September 1, 2017. In keeping with its compensation philosophy of emphasizing and rewarding long-term performance, the Compensation Committee avoided placing inordinate emphasis on strict year-over-year comparisons in any specific financial metric, such as rental income or net income, as they are in part skewed byone-time andnon-recurring events and do not reflect management’s long-term strategic focus. As such, the Compensation Committee believes that the Company’s 2017 executive compensation is fully aligned with performance. Base Salaries. The Compensation Committee typically reviews base salaries for increases every two years. In 2017, the Compensation Committee considered but did not make any adjustments to base salaries originally established in July 2013, except that Ms. Hawthorne’s base salary was increased to $450,000 in connection with her promotion to CEO in July 2016. As such, the base salary of Mr. Petersen remains at its 2013 level of $355,000. Annual Cash Incentives. Based on the achievement of the annual incentive performance targets set for 2017, the Compensation Committee awarded bonuses to all NEOs at 90% of their bonus potential in the following amounts: $405,000 for Ms. Hawthorne; and, $319,500 for Mr. Peterson. Because these awards were based onpre-established performance goals, they are presented in the Summary Compensation Table on page 44 as“Non-Equity Incentive Plan Compensation.” Equity-based Compensation. In February 2018, the Compensation Committee considered that the management achieved 14.1% in annual total return and 13.4% in average annual total return over the four years prior, as computed under the LTEIP. This result qualified executive officers for equity-based compensation at the maximum level. Accordingly, each of the NEOs received grants in March 2018 at the maximum level, based on performance in 2017 and the four years prior. PS Business Parks • 2018 Proxy Statement • 40
Proposal 2 The following table shows the number of RSUs that may be awarded to our NEOs in respect of a given year and over the four-year averaging period assuming the Company’s achievement of threshold, target and maximum performance levels of total return for each performance period. The table also shows the maximum number of RSUs each NEO had the opportunity to earn under the LTEIP. The RSUs available for award under the LTEIP were allocated among the CEO and the other NEO based on the Compensation Committee’s subjective assessment of each individual’s relative responsibilities and contributions to the Company’s total returns. With respect to the allocations to the NEO other than Ms. Hawthorne, the committee also considered the recommendations of Ms. Hawthorne. | | | | | | | | | | | | | | | | | | Potential Annual RSU
Awards under the LTEIP,
by Total Return Performance Level (1) | | | Total Number of RSUs Available for Award to Each NEO under the LTEIP, Assuming Maximum | | Name | | Threshold | | | Target | | | Maximum | | | Performance Level | Maria R. Hawthorne | | | 8,000 | | | | 10,286 | | | | 12,000 | | | 60,000 | John W. Petersen | | | 8,000 | | | | 10,286 | | | | 12,000 | | | 60,000 |
| (1) | For purposes of the cumulative RSU awards, assumes that the Company’s total return met at least the threshold performance level in 2015, andeach of the Compensation Committee does not anticipate granting stock optionsindividual years in the performance period such that none of the potential RSU awards for an individual year was added to any currentthe cumulative award at the end of the performance period. |
Performance-Based andAt-Risk Compensation The following charts depict 2017 realized compensation for our CEO, and for our other NEO, the split between (i) compensation that is tied to the achievement of performance goals, consisting of long-term equity incentive compensation in the form of RSUs and short-termnon-equity incentive compensation in the form of cash bonuses and (ii) compensation that is not tied to performance goals, consisting of base salary and all other compensation. We believe that paying a significantly larger percentage of total compensation to our CEO and other NEOs in performance-based cash and equity awards, as depicted below, properly aligns with our compensation objectives. PS Business Parks • 2018 Proxy Statement • 41
Proposal 2 
* Based on realized compensation as disclosed in the Realized Compensation Table in footnote 7 to the Summary Compensation Table section of this proxy statement. Refer to Appendix B to this proxy statement for a calculation of 2016 CEO compensation for purposes of year-over-year comparisons and analyses. 2018 Compensation Outlook The Compensation Committee believes the Company is well-positioned as a result of management’s focus and successful execution over the last several years. Given these expectations, the Compensation Committee met in February and March 2018 and made the following decisions for 2018 NEO compensation: | ● | | NEO base salaries are to be maintained at 2017 levels; |
| ● | | Consistent with our historical practice, 2018 bonus target amounts are set at 100% of base salary for each executive officer during the remaining term of the LTEIP.if performance targets are achieved; |
| ● | | The Compensation Committee has the discretion to award executive officers RSUs, stock options or a mix of both. The Compensation Committee does not set awards based on a fixed weighting between stock options and RSUs. However, it may determine not to award stock options or RSUs during certain periods. The Committee anticipates that the focus will be on RSU awards that may be made under the LTEIPthreshold for the 2014-2017 performance period.Equity Grant Practices.Equity grants, including grants of restricted stock, RSUs or stock options, to all executive officers, including named executive officers, must be approved by the Compensation Committee. These grants occur only at meetings of the Compensation Committee, and such grants are made effective as of the date of the meeting or a future date, if appropriate (such as in the case of a new hire). In general, the Compensation Committee evaluates equity awards for executive officers in February or March of each year and evaluates the awards in light of performance during the preceding year. Equity awards are not timed in coordination with the release of material non-public information. The exercise price of all options
granted is equal to the closing market price of our Common Stock on the date of grant.
Equity awards, including grants of stock options, to employees who are not executive officers may also be made by the Equity Awards Committee of the Board, which consists of two directors appointed by the Board, currently and during 2015, Messrs. Havner and Russell. These grants are made pursuant to the terms of the 2012 Plan and the authorization of the Board. The Equity Awards Committee acts after consideration of management’s recommendations. Equity grants to non-executive officers may be made at various times during the year, but are not timed in coordination with the release of material non-public information. Awards to non-executive officers typically vest over a six-year period with vesting beginning one year following the date of grant and then in five equal annual installments.
2015 Compensation
2015 Base Salaries.The Compensation Committee typically reviews base salaries for increases every two years. In July 2013, the Compensation Committee approved increases in base salaries, effective July 1, 2013, for the named executive officers. Accordingly, Mr. Russell’s base salary was set at $567,500, Mr. Petersen’s at $355,000, Mr. Stokx’s at $275,000 and Ms. Hawthorne’s at $325,000. This was the first increase in the base salaries for these executive officers since 2011. No change in base salaries for these executive officers was considered in 2014 consistent with the Committee’s practice to review base salaries every two years. In 2015, the Compensation Committee did not make any further adjustments to base salary except that in September 2015, Ms. Hawthorne’s base salary was increased to $400,000 in connection with her promotion to President of the Company, effective as of the date of her promotion in August 2015.
Annual Bonuses for 2015 Performance. In March 2015, the Compensation Committee met and considered the appropriate targets to incentivize senior management for 2015 performance in the light of still challenging market conditions. After consideration of the Company’s strategic goals and input from Mr. Russell and other Board members, including the Chairman of the Board, the Committee determined that the threshold for payment of senior executive bonuses would beis again tied to achieving targeted levels of growth in adjusted FAD and Same Park NOI and that, inAdjusted FAD;
|
| ● | | In determining whether the bonus paid is to be at, above or below the target bonus amount, the Compensation Committee will solicit the views of the Chief Executive OfficerCEO (with respect to the other named executive officers)NEOs) and the Chairman andof the Board (with respect to the Chief Executive Officer)CEO), taking into account the performance of each named executive officer,NEO, including achievement of individual performance goals and other factors deemed relevant by the Compensation Committee. To achieveCommittee; and |
| ● | | In recognition of her achievements since assuming the targeted bonus amount at the 100% level, | | | PS Business Parks • 2016 Proxy Statement • 30 | | |
Proposal 3
the Committee determined that 2015 adjusted FAD must exceed 2014 adjusted FAD by 5.0%President and 2015 Same Park NOI must exceed 2014 Same Park NOI by 2.0%.
Adjusted FAD for these purposes is calculated after FAD is computed. FAD is computed by adjusting consolidated FFO for recurring capital improvements, which the Company definesCEO position and her ongoing responsibilities as those costs incurred to maintain the assets’ value, tenant improvements, lease commissions, straight-line rent, stock compensation expense, impairment charges, amortizationinterim Chief Financial Officer, and in light of lease incentives and tenant improvement reimbursements, in-place lease adjustment and the impact of EITF Topic D-42. Consolidated FFO is computed as net income, before depreciation, amortization, minority interestretention considerations given current competitive dynamics, in income, gains or losses on asset dispositions and nonrecurring items. For purposes of calculating the FAD bonus target amounts, 2015 FAD was also adjusted to neutralize the impact of maintenance capital expenditures and by (1) decreases in preferred distributions due to the redemption of preferred securities and (2) income, capital and expenses incurred in connection with asset dispositions in 2015.
The Compensation Committee selected FAD and Same Park NOI as financial metrics because of their importance to both the PS Business Parks senior executive team and to investors. For information related to our calculation of Same Park NOI, refer to our Form 10-K for the year ended December 31, 2015.
In February 2016,March 2018 the Compensation Committee considered that adjusted 2015 FAD was $138.7 million,issued a 13.1% increase over 2014, and 2015 Same Park NOI was $237.7 million, a 4.2% increase over 2014 Same Park NOI. These results qualified executive officers for bonuses at 100% of their targeted bonus level. After taking into account the performance of each named executive officer, the following bonus payments were made: $567,500 for Mr. Russell, $368,000 forone-time award to Ms. Hawthorne $310,000 for Mr. Peterson and $230,000 for Mr. Stokx.
The Chief Executive Officer did not participateof 25,000 RSUs, which will vest in the deliberations of the Compensation Committee with respect to setting his bonus.
2015 Equity-based Compensation. The equity-based compensation opportunity afforded our executive officers in 2015 was limited to RSU awards that might be earned under the LTEIP adopted in March 2014.
Under the LTEIP, named executive officers are eligible to receive two types of awards of RSUs if the Company achieves targeted increases in total return (defined as growth in the Company’s internally calculated net asset value (NAV), which takes into account property-level returns after capitalized transactional expenditures, together with dividend yields)equal annual installments over annual and cumulative four-year performance periods. To the extent that the minimum total return target is not achieved for an annual award, the shares allocated for RSU awards in respect of such year are added to the shares that may be received if the four-year target is achieved.
The LTEIP provides for awards to be made to our executive officers if the Company achieves annual and four-year average total return levels that the Compensation Committee has determined to be challenging but achievable. Annual RSU awards may be made following completion of each of four separate annual performance periods, and a cumulative RSU award may be made in early 2018 based on total return achieved over the period 2014-2017. Under the LTEIP, executive officers may earn up to 20% of the potential RSU awards that may be made under the LTEIP each year if the maximum performance level is achieved for that year, with the actual number of RSUs awarded each year determined based on achievement of threshold, target and maximum levels of total return. If the Company’s total return does not meet the maximum performance level for any year, a number of RSUs equal to the difference between the maximum and the actual number of RSUs awarded for that year, if any, will be added to the pool of RSUs that may be awarded in respect of the cumulative award that may be made in early 2018. Any awards vest ratably over four years beginning on the date of the award. Participants receive dividends on RSUs during the vesting period.
PS Business Parks • 2016 Proxy Statement • 31
Proposal 3
The following table shows the number of RSUs that may be awarded to our named executive officers in respect of a given year and over the four-year averaging period assuming the Company’s achievement of threshold, target and maximum performance levels of total return for each performance period. The table also shows the maximum number of RSUs each named executive officer may earn under the LTEIP. The RSUs available for award under the LTEIP have been allocated among the Chief Executive Officer and the other named executive officers based on the Compensation Committee’s subjective assessment of each individual’s relative responsibilities and contributions to the Company’s total returns. With respect to the allocations to the named executive officers other than Mr. Russell, the committee also considered the recommendations of Mr. Russell.
| | | | | | | | | | | | | | | | | | Potential Annual RSU Awards under the LTEIP, by Total Return Performance Level* | | Total Number of RSUs That May be Awarded to Each Named Executive Officer under the LTEIP, Assuming Maximum | | | Name | | Threshold | | | Target | | | Maximum | | Performance Level | | | | | | | Joseph D. Russell, Jr. | | | 16,666 | | | | 21,428 | | | 25,000 | | | 125,000 | | | | | | | Maria R. Hawthorne | | | 8,000 | | | | 10,286 | | | 12,000 | | | 60,000 | | | | | | | John W. Petersen | | | 8,000 | | | | 10,286 | | | 12,000 | | | 60,000 | | | | | | | Edward A. Stokx | | | 6,666 | | | | 8,572 | | | 10,000 | | | 50,000 | |
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* | For purposes of the cumulative RSU awards, assumes that the Company’s total return met the maximum performance level in each of the individual years in the performance period such that none of the potential RSU awards for an individual year were carried over for potential award based on the Company’s four-year average total return performance.
PS Business Parks • 2018 Proxy Statement • 42
|
In February 2016, the Compensation Committee determined that the highest total return level under the LTEIP was achieved for 2015. Accordingly, each of the named executive officers received grants in March 2016 for 2015 performance at the maximum level.
Role of Executive Officers. In general, Mr. Russell attends all meetings of the Compensation Committee at which (1) compensation of the other named executive officers or other employees is discussed and/or (2) Company-wide compensation matters, such as the consideration of new equity plans, are discussed. Mr. Russell does not vote on items before the Compensation Committee. As discussed in more detail below, the Compensation Committee solicits Mr. Russell’s view on the performance of the executive officers reporting to him, including each of the other named executive officers. In general, the Compensation Committee sets the compensation for the other named executive officers after consideration of the recommendations prepared by Mr. Russell with respect to appropriate amounts to reward and incentivize each named executive officer. In addition, the Compensation Committee solicits the views of the Chairman of the Board and other Board members, particularly with respect to compensation for Mr. Russell. The Compensation Committee met four times during 2015. Mr. Russell attended a portion of most of the meetings. Mr. Russell did not participate in the deliberations of the Compensation Committee with respect to setting his compensation.
Tax and Accounting Considerations — Section 162(m). Section 162(m) imposes a $1,000,000 limit on the annual deduction that may be claimed for compensation paid to each of the chief executive officer and three other highest
paid employees of a publicly-held corporation (other than the chief financial officer). Certain performance-based compensation awarded under a plan approved by shareholders is excluded from that limitation, as is certain compensation paid by a partnership, such as the operating partnership. Most of our employees and all of our named executive officers are employed by the operating partnership. As a result, we do not believe the provisions of Section 162(m) apply to compensation for our named executive officers, who are employees of the operating partnership. However, our 2012 Plan was designed to permit the Compensation Committee to make awards that qualify for deduction as performance-based compensation consistent with the requirements of Section 162(m). The Compensation Committee generally considers the requirements of Section 162(m) when reviewing incentive compensation matters.
| | | PS Business Parks • 2016 Proxy Statement • 32 | | |
Proposal 3
Compensation Committee Report The Compensation Committee of the Board of PS Business Parks, Inc. has reviewed and discussed the foregoing CD&A with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this proxy statement and in the Annual Report on Form10-K for the fiscal year ended December 31, 2017. Report of the Compensation Committee
The Compensation Committee of the Board of Directors of PS Business Parks, Inc. has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in the Annual Report on Form 10-K for the fiscal year ended December 31, 2015. This report is provided by the following independent directors who comprise the Compensation Committee:
THE COMPENSATION COMMITTEE James H. Kropp, Chair Jennifer Holden Dunbar Michael V. McGee
Robert S. Rollo PS Business Parks • 20162018 Proxy Statement • 3343
Proposal 32 Executive Compensation Tables The following table sets forth certain information concerning the compensation paid for the years ended December 31, 2015, 20142017, 2016, and 20132015 to the Company’s principal executive officer, principal financial officer and the twoone other most highly compensated personsperson who werewas serving as executive officers of the Company on December 31, 2015.2017. These four officersthree positions constitute all the Company’s executive officers.NEOs. I. Summary Compensation Table | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | | Salary (1) | | | Bonus | | | Stock Awards (2) | | | Option Awards (2)(3) | | | Non-Equity Incentive Plan Compensation (4) | | | All Other Compensation (5)(6) | | | Total (8) | | | Maria R. Hawthorne | | | 2017 | | | | $450,801 | | | | - | | | | - | | | | - | | | | $405,000 | | | | $10,800 | | | | $866,601 | | | President and CEO(7) | | | 2016 | | | | 425,801 | | | | - | | | | 1,057,600 | | | | 235,250 | | | | 450,000 | | | | 10,600 | | | | 2,179,251 | | | | | | 2015 | | | | 353,204 | | | | - | | | | - | | | | - | | | | 368,000 | | | | 10,600 | | | | 731,804 | | | John W. Petersen | | | 2017 | | | | 355,801 | | | | - | | | | - | | | | - | | | | 319,500 | | | | 10,800 | | | | 686,101 | | | Executive Vice President and | | | 2016 | | | | 355,801 | | | | - | | | | - | | | | - | | | | 355,000 | | | | 10,600 | | | | 721,401 | | | Chief Operating Officer | | | 2015 | | | | 355,801 | | | | - | | | | - | | | | - | | | | 310,000 | | | | 10,600 | | | | 676,401 | | | Edward A. Stokx | | | 2017 | | | | 202,859 | | | | | | | | - | | | | - | | | | - | | | | 1,510,800 | | | | 1,713,659 | | | Former Executive Vice President, | | | 2016 | | | | 275,801 | | | | - | | | | - | | | | - | | | | 275,000 | | | | 10,600 | | | | 561,401 | | | Chief Financial Officer and Secretary | | | 2015 | | | | 275,801 | | | | - | | | | - | | | | - | | | | 230,000 | | | | 10,600 | | | | 516,401 | | | (through August 2017) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
I. | Summary Compensation Table
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | | Salary (1) | | | Bonus
(2) | | | Stock
Awards (3) | | | Non-Equity
Incentive Plan
Compensation
(4) | | | All Other
Compensation
(5) | | | Total | | | | | | | | | | Joseph D. Russell, Jr. | | | 2015 | | | $ | 568,301 | | | | - | | | $ | 2,434,000 | | | $ | 567,500 | | | $ | 10,600 | | | $ | 3,580,401 | | Chief Executive Officer | | | 2014 | | | | 568,301 | | | | - | | | | 1,332,113 | | | | 710,376 | | | | 10,400 | | | | 2,621,190 | | | | | | 2013 | | | | 518,301 | | | | - | | | | - | | | | 718,455 | | | | 10,200 | | | | 1,246,956 | | | | | | | | | | Maria R. Hawthorne | | | 2015 | | | | 353,204 | | | | - | | | $ | 1,168,320 | | | | 368,000 | | | | 10,600 | | | $ | 1,900,124 | | President | | | 2014 | | | | 325,747 | | | | - | | | | 639,440 | | | | 310,000 | | | | 10,400 | | | | 1,285,587 | | | | | | 2013 | | | | 286,997 | | | | 76,050 | | | | - | | | | 411,450 | | | | 10,200 | | | | 784,697 | | | | | | | | | | John W. Petersen | | | 2015 | | | | 355,801 | | | | - | | | $ | 1,168,320 | | | | 310,000 | | | | 10,600 | | | $ | 1,844,721 | | Executive vice President and Chief Operating Officer | | | 2014 | | | | 355,801 | | | | - | | | | 639,440 | | | | 300,000 | | | | 10,400 | | | | 1,305,641 | | | | | 2013 | | | | 343,301 | | | | - | | | | - | | | | 450,930 | | | | 10,200 | | | | 804,431 | | | | | | | | | | Edward A. Stokx, | | | 2015 | | | | 275,801 | | | | - | | | $ | 973,600 | | | | 230,000 | | | | 10,600 | | | $ | 1,490,001 | | Executive Vice President, | | | 2014 | | | | 275,801 | | | | - | | | | 532,813 | | | | 260,000 | | | | 10,400 | | | | 1,079,014 | | Chief Financial Officer and Secretary | | | 2013 | | | | 262,051 | | | | 64,350 | | | | - | | | | 348,150 | | | | 10,200 | | | | 684,751 | |
| (1) | Includes an amount of $801 per annum in holiday emoluments paid to each named executive officer,NEO (except Mr. Stokx, who resigned as of August 31, 2017; see footnote (6) below), a benefit provided to all employees. Also includes an award of $2,403 for Ms. Hawthorne for her 30th anniversary with the Company, whose annualizedHawthorne’s annual salary for 20152016 was $325,000$400,000 through August 24, 2015June 30, 2016 and $400,000$450,000 thereafter. |
| (2) | Includes the portion of 2013 cash bonus that was not based on the achievement of pre-established performance criteria.
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(3) | The amounts for stockequity awards reflect the grant date fair value. For a more detailed discussion and assumptions used in valuing the awards, refer to Note 11 to the Company’s audited financial statements for the fiscal year ended December 31, 2015,2017, included in the Company’s Form10-K filed with the SEC on February 23, 2016. 26, 2018. |
| (3) | The amount shown for Ms. Hawthorne in 2016 represents the grant date fair value of options to acquire 25,000 shares of Common Stock awarded in connection with her appointment to CEO in July 2016. |
| (4) | Includes amounts earned pursuant to the Company’s annual incentive award program. For Mr. Petersen, also includes $1,500 awarded under the deferred acquisition/disposition bonus plan for 2013. |
| (5) | All Other Compensation for 20152017 consists of Company contributions to the 401(k) Plan (4% of the annual cash compensation up to a maximum of $10,600$10,800 in 2015)2017). |
| (6) | In addition to the Other Compensation referenced in (5) above, Mr. Stokx received aone-time severance payment of $1,500,000 in connection with his resignation effective August 31, 2017. |
| (7) | Upon Mr. Stokx’s retirement as CFO effective August 31, 2017, Ms. Hawthorne was appointed and still serves as acting CFO pending the appointment of a successor CFO. |
| (8) | In evaluating our NEOs’ compensation, we believe it is important to understand not only the potential value of performance-based equity incentive awards at the time they are granted, but also the value of performance awards actually earned in a particular year. The Realized Compensation Table below supplements and is identical to the Summary Compensation Table above, except with respect to the method used to value stock awards subject to performance vesting. SEC rules require that the grant date fair value of all stock awards be reported in the Summary Compensation Table for the year in which they were granted. As a result, even though certain awards, like the LTEIP, are subject to multi-year performance vesting conditions and are meant to incentivize performance over multiple years, for purposes of the Summary Compensation Table they are only included in the year of grant, and the amounts are based on estimated future results rather than actual amounts earned. In contrast, the Realized Compensation Table below shows the value of performance-based stock awards actually earned based on performance as of the end of a particular year. See Note 2 above for additional information. |
| | | | | | | | | | | | | | | | | | Realized Compensation Table |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Year | | | Salary (1) | | | Bonus | | | Stock Awards | | | Option Awards (3) | | | Non-Equity Incentive Plan Compensation (4) | | | All Other Compensation (5) | | | Total | | Maria R. Hawthorne | | | 2017 | | | | $450,801 | | | | - | | | | $2,712,480 | | | | - | | | | $405,000 | | | | $10,800 | | | | $3,579,081 | | | | | 2016 | | | | 425,801 | | | | - | | | | 2,402,560 | | | | 235,250 | | | | 450,000 | | | | 10,600 | | | | 3,524,211 | | | | | | 2015 | | | | 353,204 | | | | - | | | | 1,168,320 | | | | - | | | | 368,000 | | | | 10,600 | | | | 1,900,124 | | John W. Petersen | | | 2017 | | | | 355,801 | | | | - | | | | 2,712,480 | | | | - | | | | 319,500 | | | | 10,800 | | | | 3,398,581 | | | | | 2016 | | | | 355,801 | | | | - | | | | 1,344,960 | | | | - | | | | 355,000 | | | | 10,600 | | | | 2,066,361 | | | | | | 2015 | | | | 355,801 | | | | - | | | | 1,168,320 | | | | - | | | | 310,000 | | | | 10,600 | | | | 1,844,721 | | Edward A. Stokx | | | 2017 | | | | 202,859 | | | | | | | | - | | | | - | | | | - | | | | 1,510,800 | | | | 1,713,659 | | | | | 2016 | | | | 275,801 | | | | - | | | | 1,120,800 | | | | - | | | | 275,000 | | | | 10,600 | | | | 1,682,201 | | | | | | 2015 | | | | 275,801 | | | | - | | | | 973,600 | | | | - | | | | 230,000 | | | | 10,600 | | | | 1,490,001 | |
PS Business Parks • 20162018 Proxy Statement • 3444
Proposal 32 II. | II. Grants of Plan-Based Awards |
The following table sets forth certain information relating to grants of plan-based awards to the named executive officers for 2015 performance.NEOs in 2017. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated Future | | | | | | | | | | | | | | | | | | | | Payouts Under Non- | | | | | | | | | | | | | | | | | | | | Equity Incentive Plan | | | Estimated Future Payouts Under | | | | | | | | | | | Awards (1) | | | Equity Incentive Plan Awards (1) | | | Grant Date | | | | | | | | | | | | | | | | | | | | | | | Fair Value of | | Name | | Grant Date | | | Target ($) | | | Maximum
($) | | | Threshold
(#) | | | Target (#) | | | Maximum
(#) | | | Stock Awards
($) (2) | | | | | | | | | | Joseph D. Russell, Jr. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Annual Incentive | | | 03/13/15 | | | | 567,500 | | | | 2,837,500 | | | | - | | | | - | | | | - | | | | - | | RSUs | | | 03/15/16 | | | | - | | | | - | | | | 16,666 | | | | 21,428 | | | | 25,000 | | | | $2,434,000 | | | | | | | | | | Maria R. Hawthorne | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Annual Incentive | | | 09/24/15 | | | | 400,000 | | | | 2,000,000 | | | | - | | | | - | | | | - | | | | - | | RSUs | | | 03/15/16 | | | | - | | | | - | | | | 8,000 | | | | 10,286 | | | | 12,000 | | | | 1,168,320 | | | | | | | | | | John W. Petersen | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Annual Incentive | | | 02/16/15 | | | | 355,000 | | | | 1,775,000 | | | | - | | | | - | | | | - | | | | - | | RSUs | | | 03/15/16 | | | | - | | | | - | | | | 8,000 | | | | 10,286 | | | | 12,000 | | | | 1,168,320 | | | | | | | | | | Edward A. Stokx | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Annual Incentive | | | 02/16/15 | | | | 275,000 | | | | 1,375,000 | | | | - | | | | - | | | | - | | | | - | | RSUs | | | 03/15/16 | | | | - | | | | - | | | | 6,666 | | | | 8,572 | | | | 10,000 | | | | 973,600 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated Future Payouts Under Non- Equity Incentive Plan Awards (1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards | | | All Other Option Awards: Number of Securities Underlying Options | | | Exercise or Base Price of Option
Awards | | | Grant Date Fair Value of
Stock Awards | | | Name | | Grant Date | | | Target ($) | | | Maximum ($) | | | Threshold (#) | | | Target (#) | | | Maximum (#) | | | (#) | | | ($ Sh) | | | ($) | | Maria R. Hawthorne | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 03/03/17 | | | | $450,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | John W. Petersen | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 03/03/17 | | | | $355,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Edward A. Stokx(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 03/03/17 | | | | $275,000 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| (1) | These amountsAmounts shown in these columns represent the range of possible annual cash incentive payouts and stock awards pursuant to the PS Business Parks performance-based compensation plan based upon achievement of 20152017 performance targets. Actual payouts are shown in the“Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table on page 34.
44. |
| (2) | Amounts shown in this column reflect the fair value of stock awards computed as of the of the grant dates.
Mr. Stokx retired effective August 31, 2017 so Mr. Stokx did not realize his potential payout. |
PS Business Parks • 20162018 Proxy Statement • 3545
Proposal 32 III. Option Exercises and Stock Vested in 2017 | Option Exercises and Stock Vested in 2015
|
The following table provides information about options exercised by the named executive officersNEOs during the fiscal year ended December 31, 2015.2017. | | | | | | | | | | | | | Option Awards | | | | | | Stock Awards | | | | | Option Awards | | | | | Stock Awards | | | | Name | | Number of
Shares Acquired
on Exercise (#) | | | Value Realized
on Exercise ($)
(1) | | | Number of
Shares Acquired
on Vesting (#) | | | Value
Realized on
Vesting ($)
(2) | | | Number of Shares
Acquired on
Exercise (#) | | | | | | Value Realized
on Exercise (1) | | | | | | Number of
Shares Acquired
on Vesting (#) | | | | | | Value
Realized on
Vesting (2) | | | Joseph D. Russell, Jr. | | | 50,686 | | | | $1,339,980 | | | | | 4,967 | | | | $400,252 | | | | Maria R. Hawthorne | | | 16,550 | | | | 387,095 | | | | | 2,400 | | | | 193,452 | | | | - | | | | | | - | | | | | | 10,400 | | | | | | $ 1,208,256 | | | John W. Petersen | | | 11,548 | | | | 279,886 | | | | | 2,600 | | | | 210,248 | | | | 7,500 | | | | | | $ 588,689 | | | | | | 8,600 | | | | | | 965,754 | | | Edward A. Stokx | | | 10,874 | | | | 392,421 | | | | | 2,067 | | | | 166,835 | | | | 7,000 | | | | | | 500,484 | | | | | | 7,066 | | | | | | 793,201 | |
| (1) | Value realized on exercise represents the difference between the marketclosing price of our common stock on the Company stockNYSE at the timedate of exercise and the exercise price of the options. Does not reflect any tax or other required withholdings withholdings. |
| (2) | Value realized was calculated by multiplying the number of shares vesting by the closing price of our common stock on the NYSE on the vesting date as follows: |
| | | | | | | | | | | | Name | | RSU Vesting
Date | | | | | Fair Market
Value of
RSUs ($) | | Joseph D. Russell, Jr.Maria R. Hawthorne
| | | 02/22/1517 | | | | | | $67,184 46,076 | | | | | 03/15/17 | | | | | | 896,640 | | | | | 03/15/15 | 07/01/17 | | | 333,068 | | | 265,540 | | Maria R. HawthorneJohn W. Petersen
| | 02/22/15 | | | 33,59202/22/17 | | | | | | 69,114 | | | | | | 03/15/1517 | | | 159,860 | | | 896,640 | | John W. PetersenEdward A. Stokx
| | 02/22/15 | | | 50,38802/22/17 | | | | | | 46,076 | | | | | | 03/15/1517 | | | 159,860 | | Edward A. Stokx
| | 02/22/15 | | | 33,592 | | | | 03/15/15 | | | 133,243747,125 | |
PS Business Parks • 20162018 Proxy Statement • 3646
Proposal 32 IV. Outstanding Equity Awards atYear-End | Outstanding Equity Awards at Fiscal Year-End
|
The following table sets forth certain information concerning outstanding equity awards held by the named executive officersNEOs at December 31, 2015.2017. | | | | Option Awards | | | | | Stock Awards | | | Option Awards | | | | Stock Awards | | | Name | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(1) | | | Option
Exercise
Price ($) | | | Option
Expiration
Date | | | Number of
Shares or
Units of Stock
that Have Not
Vested (#) (2) | | | Market
Value of
Shares of
Stock that
Have Not
Vested ($)
(3) | | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | | | | Option
Exercise
Price | | Option
Expiration
Date | | | | Number of
Shares or
Units of Stock
that Have Not
Vested (#) (1) | | | | Market
Value of
Shares of
Stock that
Have Not
Vested (2) | | Joseph D. Russell, Jr. | | | - | | | | - | | | $ | - | | | | - | | | | | 14,899 | | | $ | 1,302,620 | | | Maria R. Hawthorne | | | - | | | | - | | | | - | | | | - | | | | | 7,200 | | | | 629,496 | | | 5,000 | | | 20,000 | | | $ 105.76 | | | 07/01/26 | | | 25,400 | | | $ 3,177,286 | | John W. Petersen | | | 35,000 | | | | - | | | | 50.63 | | | | 03/15/20 | | | | | 7,800 | | | | 681,954 | | | 20,000 | | | | - | | | 50.63 | | | 03/15/20 | | | 17,600 | | | 2,201,584 | | Edward A. Stokx | | | 19,123 | | | | - | | | | 50.63 | | | | 03/15/20 | | | | | 6,199 | | | | 541,979 | | |
| (1) | None of our named executive officers had unvested options outstanding as of December 31, 2015.
|
(2) | All unvested RSUs were granted on (i) February 22, 2012, which RSUs vest on February 22, 2016, 2017 and 2018, and (ii) March 15, 2015, which RSUs vest on March 15, 2018, (iii) March 15, 2016, which RSUs vest on March 15, 2018 and 2019, (iv) July 1, 2016, which RSUs vest on July 1, 2018, 2019, 2020 and 2021 and (v) March 15, 2017, which RSUs vest on March 15, 2018, 2019 and 2018. 2020. |
(3)(2) | Assumes a price of $87.43$125.09 per share, the closing price for our common stock on the NYSE onas of December 31, 2015. 29, 2017. |
PS Business Parks • 20162018 Proxy Statement • 3747
Proposal 32 V. | V. Potential Payments Upon Termination or Change of Control |
Payments Upon Termination.We do not have a formal severance or retirement program for payments on termination of employment through voluntary or involuntary termination, other than as specifically set forth in the 2012 Plan, the 2003 Stock Option and Incentive Plan (the 2003 Plan), the 401(k) Plan or as required by law. These include: vested stock options following a voluntary termination of employment must be exercised within 30 days following the individual’s last date of employment; amounts contributed under our 401(k) Plan; and accrued and unused vacation pay paid in a lump sum. Payments Upon Death or Disability.In the event of the death or permanent and total disability of a named executive officeran NEO while employed by the Company, the executive officer will receive 401(k) Plan contributions noted above and accrued unused vacation pay, in addition to the following: All unvested outstanding stock options held by the officer accelerate and vest as of the date of death and may be exercised during theone-year period following the date of death, but prior to termination of the option; | | following the date of death, but prior to termination of the option; |
All outstanding unvested stock options and restricted stock unitsRSUs held by the officer continue to vest and are exercisable during theone-year period following the date of such permanent and total disability, but prior to termination of the option; and The officer will receive payments under the Company’s life insurance program or disability plan, as applicable, similar to all other employees of the Company. Payments Upon a Change of Control.The Company’s 2003 Plan provides that upon the occurrence of a “change of control” of the Company: all outstanding unvested RSUs and restricted stock grants will vest immediately; and all outstanding unvested stock options vest 15 days before consummation of such a change of control and are exercisable during such15-day period, with such exercise conditioned upon and effective immediately before consummation of the change of control. PS Business Parks • 2018 Proxy Statement • 48
Proposal 2 A “change of control” is defined in the 2003 Plan to include: the dissolution or liquidation of the Company or a merger in which the Company does not survive, survive; the sale of substantially all the Company’s assets,assets; or any transaction which results in any person or entity, other than B. Wayne Hughes and members of his family and their affiliates, owning 50% or more of the combined voting power of all classes of our stock. The foregoing provisions do not apply to the extent (1) provision is made in writing in connection with the “change “change of control” for continuation of the 2003 Plan or substitution of new options, restricted stock and RSUs or (2) a majority of the Board determines that the “change of control” will not trigger application of the foregoing provisions. Under the Company’s 2012 Plan, pursuant to which the LTEIP was adopted, the occurrence of a change of control would result in the cessation of the measurement period under the plan as of the date of the change of control. Had a change of control occurred as of December 31, 2015,2017, no payouts would have been made under the LTEIP. The following table shows the estimated value of the acceleration of unvested equity awards pursuant to the termination events described above assuming the change of control event occurred as of December 31, 20152017 and assumingusing a closing market price of our common stock on such datethe NYSE as of $87.43.December 29, 2017 of $125.09 per share. | | Name | | Value of vesting of all
outstanding unvested
options (1) | | | Value of vesting of all
outstanding restricted
share units (2) | | | Total | | | Value of vesting of all outstanding unvested options (1) | | | Value of vesting of all outstanding restricted share units (2) | | | Total | | | Joseph D. Russell, Jr. | | | - | | | | $1,302,620 | | | | $1,302,620 | | | | Maria R. Hawthorne | | | - | | | | 629,496 | | | | 629,496 | | | | $ 386,600 | | | | | | $ 3,177,286 | | | | | | $ 3,563,886 | | | John W. Petersen | | | - | | | | 681,954 | | | | 681,954 | | | | - | | | | | | 2,201,584 | | | | | | 2,201,584 | | | Edward A. Stokx | | | - | | | | 541,979 | | | | 541,979 | | |
| (1) | NoneRepresents the difference between the exercise price of unvested options held by the executive and the closing price of our named executive officers had any unvested options outstandingcommon stock on the NYSE as of December 31, 2015.
29, 2017. |
| (2) | Represents the number of RSUs multiplied by the closing price of the Company’s common stock on the NYSE onas of December 31, 2015. 29, 2017. |
PS Business Parks • 20162018 Proxy Statement • 3849
Proposal 32 Equity Compensation Plan Information as of December 31, 20152017 The following table sets forth certain equity compensation plan information as of December 31, 2015:2017: | | Plan Category (1) | | (a) Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights | | (b)
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights | | (c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in Column
(a)) | | | (a) Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights | | | (b) Weighted
average
exercise
price of
outstanding
options,
warrants and
rights | | | (c) Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in Column
(a))(2) | | | | Equity compensation plans approved by security holders | | 337,326 | | | $64.88 | | | 1,312,972 | (2) | | 337,492 | | | | $80.86 | | | | 1,046,768 | | | | | Equity compensation plans not approved by security holders | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | Total | | 337,326 | | | $64.88 | | | 1,312,972 | | | Total (3) | | | 337,492 | | | | $80.86 | | | | 1,046,768 | | | |
| (1) | Each of our equity compensation plans has been approved by our shareholders. |
| (2) | Represents shares of our common stock available for issuance under the Company’s equity compensation plan. |
PS Business Parks • 20162018 Proxy Statement • 3950
Proposal 32 Stock Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Beneficial Owners The following table sets forth information as of the dates indicated with respect to persons known to the Company to be the beneficial owners of more than 5% of the outstanding shares of Common Stock: | | | | | | | | | | Shares of Common Stock Beneficially Owned | | Name and Address | | Number of Shares | | | Percent of Class (1) | Public Storage | | | 7,158,354 | | | 26.48% | 701 Western Avenue | | | | | | | Glendale, California 91201-2349 (2) | | | | | | | The Vanguard Group | | | 2,943,442 | | | 10.89% | 100 Vanguard Blvd. | | | | | | | Malvern, Pennsylvania 19355 (3) | | | | | | | T. Rowe Price Associates, Inc. | | | 2,930,758 | | | 10.84% | 100 E. Pratt Street | | | | | | | Baltimore, Maryland 21202 (4) | | | | | | | BlackRock, Inc. | | | 2,373,189 | | | 8.78% | 55 East 52nd Street | | | | | | | New York, New York 10022 (5) | | | | | | | Vanguard Specialized Funds | | | 1,457,542 | | | 5.39% | Vanguard REIT Index Fund | | | | | | | 100 Vanguard Blvd. | | | | | | | Malvern, Pennsylvania 19355 (6) | | | | | | |
| | | | | | | | | | Shares of Common Stock
Beneficially Owned | | | | | Name and Address | | Number of
Shares | | | Percent of Class (1) | Public Storage 701 Western Avenue Glendale, California 91201-2349 (2) | | | 7,158,354 | | | 26.3% | BlackRock, Inc. 55 East 52nd Street New York, New York 10022 (3) | | | 3,468,381 | | | 12.7% | The Vanguard Group 100 Vanguard Blvd. Malvern, Pennsylvania 19355 (4) | | | 3,402,375 | | | 12.5% | T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, Maryland 21202 (5) | | | 2,390,349 | | | 8.7% | Vanguard Specialized Funds Vanguard REIT Index Fund 100 Vanguard Blvd. Malvern, Pennsylvania 19355 (6) | | | 1,373,151 | | | 5.0% |
| (1) | The percent of class is calculated using the common stock ownership numbers as of the dates indicated below divided by shares outstanding on March 1, 20162018 of 27,035,20727,255,525 shares of Common Stock. |
| (2) | Holdings reported are as of March 1, 2016.2018. The reporting persons listed above have filed a joint Schedule 13D, amended as of November 8, 2013. Public Storage has sole voting and dispositive power with respect to all such shares. The 7,158,354 shares of Common Stock in the above table do not include 7,305,355 Units held by Public Storage and affiliated partnerships which (pursuant to the terms of the agreement of limited partnership of our operating partnership) are redeemable by the holder for cash or, at the Company’s election, for shares of the Company’s common stock on aone-for-one basis. Upon conversion of the Units to Common Stock, Public Storage and its affiliated partnerships would own approximately 42.1%41.8% of the Common Stock (based upon the Common Stock outstanding at March 1, 20162018 and assuming such conversion). |
| (3) | Holdings reported as of December 31, 20152017 as set forth in Schedule 13G/A filed on January 19, 2018 by BlackRock, Inc. and certain affiliates to report beneficial ownership and sole dispositive power with respect to 3,468,381 shares and sole voting power with respect to 3,373,481 shares. |
| (4) | Holdings reported as of December 31, 2017 as set forth on a Schedule 13G/A filed on February 10, 20162, 2018 by The Vanguard Group, as investment adviser of its clients, to report sole voting power with respect to 56,65162,306 shares, shared voting power with respect to 16,65026,630 shares, sole dispositive power with respect to 2,899,9343,338,965 shares and shared dispositive power with respect to 43,50863,410 shares. |
(4)(5) | Holdings reported as of December 31, 20152017 as set forth on a Schedule 13G/A filed on February 10, 201614, 2018 by T. Rowe Price Associates, Inc. (Price Associates), as investment adviser of its clients, to report sole voting power with respect to 398,816421,306 shares and sole dispositive power with respect to 2,930,7582,390,349 shares. For SEC reporting purposes, Price Associates is deemed to be a beneficial owner of these securities. However, Price Associates has expressly disclaimed that it is an owner of such securities. |
(5)(6) | Holdings reported as of December 31, 2015 as set forth in Schedule 13G/A filed on January 27, 2016 by BlackRock, Inc. and certain affiliates to report beneficial ownership and sole dispositive power with respect to 2,373,189 shares and sole voting power with respect to 2,303,388 shares. |
(6) | Holdings reported as of December 31, 20152017 as set forth on a Schedule 13G/A filed on February 9, 20162, 2018 by Vanguard Specialized Funds – Vanguard REIT Index Fund to report sole voting power with respect to 1,457,5421,373,151 shares.
|
PS Business Parks • 20162018 Proxy Statement • 4051
Proposal 32 Security Beneficial Ownership of Directors and Management The following table sets forth information as of March 1, 20162018 concerning the beneficial ownership of Common Stock of each director of the Company, the Company’s Chief Executive Officer,CEO, the Chief Financial OfficerCFO and the other two most highly compensated persons who were executive officers of the Company on December 31, 20152017 and all directors and executive officers as a group: | | | | | | | | | Shares of Common Stock Beneficially Owned | | | Name | | Common Shares
Beneficially Owned (1) | | | Percent of
Class (1) | | Number of Shares (1) | | Percent of Class (1) | | | Ronald L. Havner, Jr. | | | 220,029 | | | (2) | | * | | 202,389 | (2) | | * | | | Joseph D. Russell, Jr. | | | 33,435 | | | | | * | | 44,688 | | | * | | | Jennifer Holden Dunbar | | | 18,679 | | | (3) | | * | | 18,519 | (3) | | * | | | Sara Grootwassink Lewis | | | 14,102 | | | | | * | | 9,668 | | | * | | | James H. Kropp | | | 26,094 | | | (4) | | * | | 27,498 | (4) | | * | | | Michael V. McGee | | | 39,251 | | | (5) | | * | | | Gary E. Pruitt | | | 13,515 | | | | | * | | 20,010 | | | * | | | Robert S. Rollo | | | 6,644 | | | (6) | | * | | 2,902 | | | * | | | Peter Schultz | | | 12,725 | | | | | * | | 19,220 | | | * | | | John W. Petersen | | | 45,298 | | | | | * | | 37,027 | | | * | | | Edward A. Stokx | | | 26,698 | | | | | * | | | Maria R. Hawthorne | | | 7,269 | | | | | * | | 27,249 | | | * | | All Directors and Executive Officers as a Group (12 persons) | | | 463,739 | | | (1)(2)(3)(4)(5)(6) | | 1.7% | | All Directors and Executive Officers as a Group (10 persons) | | | 409,170 | (1)(2)(3)(4) | | 1.5% | |
| (1) | Represents shares of Common Stock beneficially owned as of March 1, 20162018 and includes options to purchase shares of Common Stock exercisable within 60 days of March 1, 2016,2018, as follows: R. Havner, 21,44511,805 shares; J. Russell, 0400 shares; J. Holden Dunbar, 15,75415,594 shares; S. Grootwassink Lewis, 11,1026,668 shares; J. Kropp, 13,169 shares; M. McGee, 28,75113,873 shares; G. Pruitt, 11,51518,010 shares; R. Rollo, 5,3421,600 shares; P. Schultz, 11,51518,010 shares; J. Petersen, 35,000 shares; E. Stokx, 19,12320,000 shares; M. Hawthorne, 05,000 shares. Except as otherwise indicated and subject to applicable community property and similar statutes, the persons listed as beneficial owners of the shares have sole voting and investment power with respect to such shares. Includes shares credited to the accounts of the executive officers of the Company that are held in the 401(k) Plan. Does not include restricted stock unitsRSUs described in the Grants of Plan-Based Awards table unless such units would vest and be issued within 60 days of the date of this table. The percentage held is calculated using the outstanding common shares on March 1, 20162018 of 27,035,20727,255,525 shares. |
| (2) | Includes 190,584185,584 shares held by Mr. Havner and his spouse as trustees of the Havner Family Trust. Includes 1,500 shares held byin a custodian of an IRA for the benefit of Mr. Havner and 2,500 shares held by a custodian of an IRA forjoint account with Mr. Havner’s spouse as to which she has investment power.that are pledged in a margin brokerage account. Includes 4,0005,000 shares owned by the Havner Family Foundation of which Mr. Havner and his wife areco-trustees but with respect to which Mr. and Mrs. Havner disclaim any beneficial interest. Does not include shares owned by Public Storage as to which Mr. Havner disclaims beneficial ownership. Mr. Havner is Chairman of the Board President and Chief Executive Officer of Public Storage. See “Security Ownership of Certain Beneficial Owners” on page 4050 for Public Storage ownership. |
| (3) | All the shares are held by Ms. Dunbar and her spouse as trustees of the Lilac II Trust. |
| (4) | Includes 4,491 shares held by custodian of an IRA for the benefit of Mr. Kropp. |
(5) | Includes unvested options to purchase 6,040 shares of Common Stock, the vesting of which is being accelerated in connection with Mr. McGee’s retirement as director. See footnote 4 to the Directors’ Compensation Table on page 17. Also includes 8,000 fully vested shares of Common Stock which Mr. McGee is entitled to receive on April 26, 2016 under our Retirement Plan for Non-Employee Directors. See “Compensation of Directors – Retirement Stock Grants” on page 16. The balance of Mr. McGee’s shares is held by a custodian of an IRA for the benefit of Mr. McGee.
|
(6) | Includes 1,302 shares held by custodian of two IRA accounts for the benefit of Mr. Rollo.
|
PS Business Parks • 20162018 Proxy Statement • 4152
Proposal 32 Additional Information about our Directors and Executive Officers; Certain Relationships Policy Regarding Pledging of Shares Our insider trading policy discourages (but does not prohibit) the pledging of shares of Common Stock by insiders. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who own more than 10% of any registered class of the Company’s equity securities to file reports of ownership and changes of ownership of those securities with the SEC and the NYSE. Executive officers, directors and greater than 10% shareholders are required by SEC regulations to provide the Company with a copy of all Section 10(a)16(a) forms that they file. Based solely on a review of reports we filed on behalf of our directors and executive officers and written representations from these individuals that no other reports were required, one Form 4 report on behalf of Gary Pruitt and one Form 4 report on behalf of Jennifer Holden Dunbar were filed in an untimely manner in 2015. Wewe believe that all other reports on behalf of our directors and executive officers were filed on a timely basis under Section 16(a)., except for one transaction on one report for each of Ms. Dunbar and Mr. Petersen due to the Company’s administrative error. Related Party Transaction Approval Policies and Procedures With respect to transactions involving our directors, our Code of Ethics provides for review by the Board of related party transactions that might present a possible conflict of interest. The Nominating/Corporate Governance Committee reviews related party transactions involving Board members pursuant to the Code of Ethics. Directors are requested to submit information in advance to the Nominating/Corporate Governance Committee. The Nominating/Corporate Governance Committee considers the matters submitted to it in light of the facts and circumstances presented and considering the best interests of the Company and makes a recommendation to the Board with respect to any action to be taken. The director with an actual, potential or apparent conflict of interest does not participate in the decision-making process related to the transaction. Our executive officers are subject to our BCS.Business Conduct Standards. Under the BCS,Business Conduct Standards, executive officers are required to discuss and seekpre-approval of the Chief Executive OfficerCEO for any potential conflicts of interest. In addition, the Audit Committee reviews, on an ongoing basis, related party transactions involving our executive officers and directors or Public Storage that may require Boardpre-approval under applicable law or may be required to be disclosed in our financial statements. Relationship with Public Storage The properties in which the Company has an equity interest are generally owned by the operating partnership. As of March 1, 2016,2018, the Company owned approximately 77.8%78.9% of the operating partnership’s common partnership units. The remaining common partnership units were owned by Public Storage. The 7,305,355 Units held by Public Storage and affiliated partnerships are redeemable (pursuant to the terms of the agreement of limited partnership of the operating partnership) by the holder for cash or, at the Company’s election, for shares of our Common Stock on aone-for-one basis. Upon conversion of the Units to Common Stock, Public Storage and its affiliated partnerships would own approximately 42%41.8% of the Common Stock (based upon the Common Stock outstanding at March 1, 20162018 and assuming such conversion). Management Agreement with Affiliates The operating partnership operates industrial, retail and office facilities for Public Storage and partnerships and joint ventures of which Public Storage is a general partner or joint venturer (the Affiliated Entities) pursuant to a management agreement under which Public Storage and the Affiliated Entities pay to the operating partnership a fee of 5% of the gross revenues of the facilities operated for Public Storage and the Affiliated Entities. During 2015,2017, Public Storage and the Affiliated Entities paid fees of approximately $540,000$506,000 to the operating partnership pursuant to that management agreement. AsIn 2017, we allocated approximately $537,000 in operating expenses to facilities directly owned by Public Storage relating to the management agreement, has a seven-year term with the term being automatically extended for one year on each anniversary date (thereby maintaining a term of seven years from each anniversary date) unless either party (Public Storage or the operating partnership) notifies theincluding payroll and other that the management agreement is not being extended, in which case it expires, as PS Business Parks • 2018 Proxy Statement • 53
Proposal 2 overhead expenses. We had net amounts due to such facilities, on the first anniversary of its then scheduled expiration date. As to facilities owned by the Affiliated Entities, the management agreement may be terminated as to such facilities upon 60 days’ notice by Public Storage (on behalf of the Affiliated Entity) and upon seven years’ notice by the operating partnership.$245,000 at December 31, 2017. Public Storage also provides property management services for the self-storage component of two assets owned by the Company. These self-storage facilities, located in Palm Beach County, Florida, operate under the “Public Storage” name. Under the property management contracts, Public Storage is compensated based on a percentage of the gross revenues of the facilities managed. Under the supervision of the Company, Public Storage PS Business Parks • 2016 Proxy Statement • 42
Proposal 3
coordinates rental policies, rent collections, marketing activities, the purchase of equipment and supplies, maintenance activities and the selection and engagement of vendors, suppliers and independent contractors. In addition, Public Storage assists and advises the Company in establishing policies for the hire, discharge and supervision of employees for the operation of these facilities, includingon-site managers, assistant managers and associate managers. Both the Company and Public Storage can cancel the property management contract upon 60 days’ notice. Management fee expenses under the contractfees paid for these facilities were approximately $79,000$92,000 for the year ended December 31, 2015. We had net amounts due from2017. And, in 2017, Public Storage of $57,000 at December 31, 2015 for these contracts, as well as for certainallocated approximately $61,000 in operating expenses paid byto us on behalfrelated to the management of Public Storage.the facilities, including payroll and overhead expenses.
Public Storage also owns and licenses the PS Business Parks name and logo to the Company under a royalty-free license that may be terminated upon six months’ notice to the Company. Cost Sharing and Other Arrangements with Affiliates and Other TransactionsPublic Storage Pursuant to a cost sharing and administrationadministrative services agreement, PS Business Parks shares the cost ofarrangement, we share certain administrative services, and rental of corporate office space and certain other third party 401 with Public Storage which are allocated based upon time, effort and its affiliates. During 2015other methodologies. Public Storage reimbursed us $31,000 for the year ended December 31, 2017 for costs paid on their behalf, and we paidreimbursed Public Storage $1.3 million in costs totaling approximately $469,000.that Public Storage incurred on our behalf for the year ended December 31, 2017. Common Management/Board Members with Public Storage Ronald L. Havner, Jr., Chairman of the Board, is also Chairman President and Chief Executive Officer of Public Storage. Joseph D. Russell, Jr., a director, is also the President of Public Storage and, effective January 1, 2019, will serve as the Chief Executive Officer of Public Storage and join its board. Gary E. Pruitt, a director, is also a member of the Public Storage board of trustees. The Board recommends a vote FOR approval of our executive compensation as described in this proxy statement. PS Business Parks • 20162018 Proxy Statement • 4354
Proposal 3: Ratification of independent registered public accounting firm | | | | | The Audit Committee has appointed Ernst & Young LLP (EY) as the Company’s independent registered public accounting firm to audit the Consolidated Financial Statements of PS Business Parks and its subsidiaries for the year ending December 31, 2018 RECOMMENDATION: Vote FOR ratification of EY |
PS Business Parks • 2018 Proxy Statement • 55
Proposal 3 Proposal 3 – Ratification of independent registered public accountants Executive Summary The Board recommends that shareholders ratify the Audit Committee’s selection of EY as the Company’s independent registered public accounting firm (Independent Accountants) for the fiscal year ending December 31, 2018. EY has acted as the Independent Accountants since the Company’s organization in 1997. Ratification is not required by the Company’s bylaws, but the Board believes that shareholder ratification of the appointment is good corporate governance. If shareholders do not ratify the appointment of EY, the Audit Committee will reconsider its selection, but may nevertheless determine to do so. Even if the appointment of EY is ratified by the shareholders, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that a change would be in the best interest of the Company and its shareholders. AuditandNon-Audit Fees The following table shows the fees billed or expected to be billed to the Company by EY for audit and other services provided for fiscal 2016 and 2017: | | | | | | | | | | | | 2016 | | | 2017 | | Audit fees | | $ | 578,000 | | | $ | 623,000 | | Audit-related fees | | | 21,000 | | | | 22,000 | | Tax Fees | | | 51,000 | | | | 44,000 | | All Other Fees | | | 0 | | | | 0 | | Total | | | 650,000 | | | | 689,000 | |
Audit Fees.Audit fees represent fees for professional services provided in connection with the audit of the Company’s annual financial statements and internal control over financial reporting, review of the quarterly financial statements included in the Company’s quarterly reports on Form10-Q and services in connection with the Company’s registration statements. Audit related fees. Audit-related fees represent professional fees provided in connection with the audit of the Company’s 401(k)/Profit Sharing Plan (the 401(k) Plan). Tax fees. During 2017 and 2016, all of the tax services consisted of tax compliance and consulting services. AuditorIndependence The Audit Committee has determined that the Independent Accountants’ provision of thenon-audit services described above is compatible with maintaining the Independent Accountants’ independence. Policy to ApproveErnst & Young LLP Services The Audit Committee has adopted apre-approval policy relating to services performed by the Company’s independent registered public accounting firm. The policy requires that all services provided by EY to us, including audit services, audit-related services, tax services and other services, must bepre-approved by the Audit Committee. Under this policy, the Audit Committee of the Companypre-approved all services performed by EY during 2017 and 2016, including those listed in the previous table. The Chairman of the Audit Committee has the authority to grant required approvals between meetings of the Audit Committee, provided that any exercise of this authority is presented at the next committee meeting. PS Business Parks • 2018 Proxy Statement • 56
Proposal 3 Audit Committee Report The Audit Committee’s responsibilities include appointing the Company’s independent registered public accounting firm,pre-approving audit andnon-audit services provided by the firm and assisting the Board in providing oversight to the Company’s financial reporting process. In fulfilling its oversight responsibilities, the Audit Committee meets with the Company’s independent registered public accounting firm, internal auditors and management to review accounting, auditing, internal controls and financial reporting matters. In fulfilling its responsibilities, the Audit Committee meets with the Company’s independent registered public accounting firm, internal auditor and management to review the Company’s accounting, auditing internal controls and financial reporting matters. Management is responsible for the Company’s financial statements, including the estimates and judgments on which they are based, for maintaining effective internal controls over financial reporting and for assessing the effectiveness of internal controls over financial reporting. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the PCAOB and for issuing a report thereon. It is not the Audit Committee’s responsibility to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete, accurate and in accordance with U.S. generally accepted accounting principles and applicable laws, rules and regulations. The Audit Committee’s responsibility is to monitor and oversee these processes and necessarily relies on the work and assurances of the Company’s management and of the Company’s independent registered public accounting firm. In connection with its oversight responsibilities related to the Company’s financial statements included in the Company’s Annual Report on Form10-K, the Audit Committee met with management and Ernst & Young LLP, the Company’s independent registered public accounting firm, and reviewed and discussed with them the audited consolidated financial statements. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by PCAOB Auditing Standard No. 16 (Communication with Audit Committees), as modified or supplemented. The discussion included, but was not limited to, the overall scope and plans for the annual audit, the results of their audit, their evaluation of the Company’s internal controls and the overall quality of the Company’s financial reporting. In addition to providing the required written disclosures and communications, the Company’s independent registered public accounting firm also provided to the Audit Committee the letter confirming their independence of the Company as required by the applicable rules of the PCAOB, and the Audit Committee discussed with the independent registered public accounting firm that firm’s independence. In addition, the Audit Committee has considered whether the independent registered public accounting firm’s provision ofnon-audit services to the Company and its affiliates is compatible with the firm’s independence. During 2017, management documented, tested and evaluated the Company’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and SEC regulations adopted thereunder. The Audit Committee met with representatives of management, the internal auditors, legal counsel and the independent registered public accounting firm on a regular basis throughout the year to discuss the progress of the process. At the conclusion of this process, the Audit Committee received from management its assessment and report on the effectiveness of the Company’s internal controls over financial reporting. In addition, the Audit Committee received from Ernst & Young LLP its assessment of and opinion on the Company’s internal control over financial reporting. These assessments and reports are as of December 31, 2017. The Audit Committee reviewed and discussed the results of management’s assessment and Ernst & Young LLP’s audit. PS Business Parks • 2018 Proxy Statement • 57
Proposal 3 In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the audited consolidated financial statements be included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2017 for filing with the Securities and Exchange Commission. The Audit Committee also approved the appointment of Ernst & Young LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2018 and recommended that the Board submit this appointment to the Company’s shareholders for ratification at the 2018 Annual Meeting. THE AUDIT COMMITTEE Sara Grootwassink Lewis, Chair Jennifer Holden Dunbar Gary E. Pruitt Peter Schultz PS Business Parks • 2018 Proxy Statement • 58
General Information About the Meeting Purpose of the proxy solicitation We are providing these proxy materials on behalf of the Board of PS Business Parks, Inc. to ask for your vote and to solicit your proxies for use at our 20162018 Annual Meeting to be held on April 26, 2016,24, 2018, or any adjournments or postponements thereof. We have made these materials available to you on the Internet or, upon your request, delivered printed versions of these materials to you by mail, because you were a shareholder as of March 1, 2016,2018, the record date (the record date) fixed by the Board, and are therefore entitled to receive notice of the Annual Meeting (the Notice) and to vote on matters presented at the Annual Meeting. This proxy statement contains important information regarding the Annual Meeting. Specifically, it identifies the proposals on which you are being asked to vote, provides information that you may find useful in determining how to vote and describes voting procedures. This Notice and proxy statement are first being distributed and made available on or about March 24, 201623, 2018 to holders of our common stock on the record date. A copy of our Annual Report to Shareholders for the fiscal year ended December 31, 2015,2017, which includes a copy of our 2015 Annual Report on Form10-K, (the Form 10-K), accompanies this proxy statement. Date, time and place of the annual meeting The Annual Meeting will be held on Tuesday, April 26, 201624, 2018 at 10:0045 a.m., Pacific Daylight Time, at the Westin Pasadena, 191 NorthHilton Los Robles, Pasadena,Angeles North/Glendale, 100 West Glenoaks Blvd., Glendale, California 91101.91202. Who can vote If you are a holder of PS Business Parks’ Common Stock at the close of business on the record date, you may vote the shares of Common Stock that you hold on that date at the Annual Meeting. For all matters submitted for vote at the Annual Meeting, each share of Common Stock is entitled to one vote. Quorum for the annual meeting If a majority of the shares of Common Stock outstanding on the record date are present in person or represented by proxy at the Annual Meeting, we will have a quorum, permitting business to be conducted at the Annual Meeting. As of the record date, we had 27,035,207 shares27,255,525shares of Common Stock outstanding and entitled to vote. How votesare counted For the election of directors, director nominees receiving an affirmative majority of votes cast (i.e., the number of shares cast “for” a director nominee must exceed the number of votes cast “against” that nominee) will be elected. Similarly, approval of each other proposal to be voted on at the annual meeting requires an affirmative majority of the votes cast (i.e., the number of shares cast for” the proposal must exceed the number of votes cast against” that proposal). We will not count shares that abstain from voting. Although the advisory vote to approve executive compensation in Proposal 2 isnon-binding, the Compensation Committee will consider and take into account the vote results in making future determinations on executive compensation. PS Business Parks • 2018 Proxy Statement • 59
How proxies will be voted If you hold shares through a broker or nominee and do not provide the broker or nominee with specific voting instructions, under the rules that govern brokers or nominees in such circumstances, your broker or nominee will have the discretion to vote such shares on routine matters, but not onnon-routine matters. As a result: Your broker or nominee will not have the authority to exercise discretion to vote such shares with respect to Proposals 1 and 32 because the New York Stock Exchange (the NYSE)NYSE rules treat these matters asnon-routine; and Your broker or nominee will have the authority to exercise discretion to vote such shares with respect to Proposal 23 because that matter is treated as routine under the NYSE rules rules.Brokernon-votes will be counted as present for purposes of determining the presence or absence of a quorum but will otherwise have no effect on the outcome of the vote on Proposals 1 and 3.2. If you are a registered shareholder and no instructions are indicated on a properly executed proxy card submitted by you, the shares represented by the proxy will be voted FOR (i) each of Proposals 1, 2 and 3, and (ii) in accordance with the judgment of the proxy holders as to any other matter that may properly be brought before the Annual Meeting, or any adjournments or postponements thereof. How to cast a vote You may vote by any of the following means: By Internet: Shareholders who received a Notice about the Internet availability of our proxy materials may submit proxies over the Internet by following the instructions on the Notice. Shareholders who have received a paper copy of a proxy card or voting instruction card by mail may submit proxies over the Internet by following the instructions on the proxy card or voting instruction card. By Telephone: If provided on your proxy card or voting instruction card and if you live in the United States or Canada, you may submit proxies by telephone by calling the telephone number indicated on the card and following the instructions. You will need to have available the control number that appears on the card when voting. PS Business Parks • 2016 Proxy Statement • 44
By Mail: Shareholders who have received a paper copy of a proxy card or voting instruction card by mail may submit proxies by completing, signing and dating their proxy card or voting instruction card and mailing it in the accompanying self-addressed envelope. No postage is necessary if mailed in the United States. In person, at the Annual Meeting: Shareholders who hold shares in their name as the shareholder of record may vote in person at the Annual Meeting. Shareholders who are beneficial owners but not shareholders of record may vote in person at the Annual Meeting only with a legal proxy obtained from their broker, trustee or nominee, as applicable. Properly completed and submitted proxy cards and voting instruction cards, and proxies properly completed and submitted over the Internet, if received in time for voting and not revoked, will be voted at the Annual Meeting in accordance with the instructions contained therein. How to vote asvoteas a participant in the 401(k) Plan If you hold your shares as a participant in the 401(k) Plan, your proxy will serve as a voting instruction for the trustee of the 401(k) Plan with respect to the amount of shares of Common Stock credited to your account as of the record date. If you provide voting instructions via your proxy card or voting instruction card with respect to your shares of Common Stock held in the 401(k) Plan, the trustee will vote those shares of Common Stock in the manner specified. The trustee will vote any shares of Common Stock for which it does not receive instructions in the same PS Business Parks • 2018 Proxy Statement • 60
proportion as the shares of Common Stock for which voting instructions have been received, unless the trustee is required by law to exercise its discretion in voting such shares. To allow sufficient time for the trustee to vote your shares of Common Stock, the trustee must receive your voting instructions by 7:00 a.m., Pacific Daylight Time, on April 22, 2016.20, 2018. Changing your vote You can change your vote at any time before your proxy is voted at the Annual Meeting. To revoke your proxy, you must either: file an instrument of revocation with our Corporate Secretary at our principal executive offices, 701 Western Avenue, Glendale, California 91201-2349; mail a new proxy card dated after the date of the proxy you wish to revoke to our Corporate Secretary at our principal executive offices; submit a later dated proxy over the Internet in accordance with the instructions set forth on the Internet voting website; or if you are a shareholder of record, or you obtain a legal proxy from your broker, trustee or nominee, as applicable, attend the Annual Meeting and vote in person. If not revoked, we will vote the proxy at the Annual Meeting in accordance with your instructions indicated on the proxy card, voting instruction card or, if submitted over the Internet, as indicated on the submission. Cost of this proxy solicitation We bear all proxy solicitation costs. In addition to solicitations by mail, our Board, our officers and our regular employees, without additional remuneration, may solicit proxies by telephone, facsimile, electronic transmission and personal interviews. We will request brokers, banks, custodians and other fiduciaries to forward proxy soliciting materials to the beneficial owners of Common Stock. We will reimburse them for their reasonableout-of-pocket expenses incurred in connection with distributing proxy materials. Alliance Advisors LLC may be retained as our proxy distribution agent, for which they would receive an estimated fee of $1,000$1,100 together with normal and customary expenses. Contacting our transfer agent Please contact PS Business Parks’ transfer agent at the phone number or address listed below, with questions concerning share certificates, dividend checks, transfer of ownership or other matters pertaining to your share account: American Stock Transfer & Trust Company, LLC 6201 15th Avenue, Brooklyn, New York 11219,800-937-5449. Consideration of candidates for director The policy of the Nominating/Corporate Governance Committee is to consider properly submitted shareholder recommendations for candidates for membership on the Board. Under this policy, shareholder recommendations may only be submitted by a shareholder entitled to submit shareholder proposals under the SEC rules. Any shareholder recommendations proposed for consideration by the Nominating/Corporate Governance Committee should include the nominee’s name and qualifications for board membership, including the information required under Regulation 14A under the Exchange Act, and should be addressed to: Maria R. Hawthorne, President and Chief Executive Officer, PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201-2349. Deadlines for receipt of shareholder proposals UnderAny proposal that a holder of our shares wishes to submit for inclusion in our 2019 Proxy Statement pursuant to SEC rules,Rule14a-8, including any notice by a shareholder proposal intendedof his, her or its intention to be presentedcumulate votes in the election of trustees at the 20172019 Annual Meeting, and included in the Company’s 2016 proxy statement must be received by us at our executive officesthe Company no later than November 24, 2016. Any such proposal should be sent23, 2018. Such proposals also must comply with SEC regulations underRule 14a-8 regarding the inclusion of shareholder proposals in Company-sponsored proxy materials. Under Rule14a-8, we are not required to include shareholder
PS Business Parks • 2018 Proxy Statement • 61
proposals in our proxy materials unless certain conditions specified in the attention of our Secretary and must meet the requirements of the SEC rules and our bylaws.rule are met. In addition, notice of any proposal that a shareholderholder of our shares wishes to propose for consideration at the 20172019 Annual Meeting, of Shareholders (including nominations for director), but does not seek to include in the Company’s 20172019 Proxy Statement pursuant to Rule14a-8, must be delivered to the Company no laterearlier than February 7, 20176, 2019 if the shareholder wishes for PS Business Parks • 2016 Proxy Statement • 45
the Company to describe the nature of the proposal in its 20172019 Proxy Statement as a condition to exercising its discretionary authority to vote proxies on the proposal. As with shareholder nominations of director candidates discussed above, if the date of the 2019 Proxy Statement is moved by more than 30 days before or after the anniversary of the date of this proxy statement, the shareholder proposal must be received no earlier than the 120th day and no later than the 90th day prior to the mailing of the notice for the meeting or the tenth day following the date we announce publicly the date for the 2019 Proxy Statement. Any shareholder proposals or notices submitted to the Company in connection with the 20172019 Annual Meeting of Shareholders should be addressed to: Edward A. Stokx, Secretary,Maria R. Hawthorne, President and Chief Executive Officer, PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201-2349. Annual report onreporton Form10-K A copy of our 20152017 Annual Report and our 2015 Annual Report on Form10-K accompanies this proxy statement. Additional copies are available at: https://www.psbusinessparks.com/investor-relations/financial-reports/ The Company will furnish without charge upon written request of any shareholder a paper copy of the 2015 Form 10-K, excluding exhibits, without charge, upon a written request to Edward A. Stokx,Maria R. Hawthorne, President and Chief Executive Officer, Secretary, PS Business Parks, Inc., 701 Western Avenue, Glendale, California 91201-2349. Copies of exhibits will be provided at a copying charge of $0.20 per page to reimburse us for a portion of the cost. Other matters The Board knows of no other matters to be presented for shareholder action at the Annual Meeting. If any other matters are properly presented at the Annual Meeting for action, the persons named in the accompanying proxy will vote the shares represented by the proxy in accordance with their best judgment on such matters. You are urged to vote the accompanying proxy and sign, date and return it in the enclosedpre-addressed postage-paid envelope at your earliest convenience, whether or not you currently plan to attend the meeting in person. PS Business Parks • 2018 Proxy Statement • 62
Appendices | By order of the Board of Directors | | |  | Edward A. Stokx,Appendix A:
Executive Vice President, Chief FinancialReconciliation ofnon-GAAP measures to
OfficerGAAP and Secretary
Glendale, California
March 24, 2016other information
|
PS Business Parks • 20162018 Proxy Statement • 4663
SUPPLEMENTALNON-GAAP DISCLOSURES (UNAUDITED) | | Funds Available for Distribution (FAD) per Common and Dilutive Share(1) |
The table below reconciles from Core FFO (as disclosed in our 2017 Annual Report on Form10-K) to FAD per share. | | | | | | | | | | | | | | | | | | | | | | | | For The Years Ended December 31, | | | | | | | | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | | | | | Core FFO per share(2) | | $ | 5.07 | | | $ | 4.73 | | | $ | 4.83 | | | $ | 5.44 | | | $ | 6.13 | | Deduct capital expenditures and eliminatenon-cash stock based compensation/other | | | (1.63 | ) | | | (1.30 | ) | | | (1.12 | ) | | | (0.83 | ) | | | (1.42) | | | | | | | FAD per share(3) | | $ | 3.44 | | | $ | 3.43 | | | $ | 3.71 | | | $ | 4.61 | | | $ | 4.71 | | | | | | |
| | Reconciliation of Net Income to EBITDA(In thousands) |
The following table reconciles from net income to EBITDA. | | | | | | | | | | | | | | | | | | | | | | | | For The Years Ended December 31, | | | | | | | | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | | | | | Net Income | | $ | 116,144 | | | $ | 204,700 | | | $ | 148,970 | | | $ | 144,984 | | | $ | 179,316 | | Adjustments: | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 108,917 | | | | 110,357 | | | | 105,394 | | | | 99,486 | | | | 94,270 | | Depreciation from unconsolidated joint venture | | | — | | | | — | | | | — | | | | — | | | | 1,180 | | Interest expense | | | 16,074 | | | | 13,509 | | | | 13,270 | | | | 5,568 | | | | 1,179 | | Interest income | | | (102) | | | | (69) | | | | (631) | | | | (463) | | | | (356) | | Gain on sale of land and real estate facilities | | | — | | | | (92,373) | | | | (28,235) | | | | — | | | | (1,209) | | Gain on sale of development rights | | | — | | | | — | | | | — | | | | — | | | | (6,365) | | | | | | | EBITDA(4) | | $ | 241,033 | | | $ | 236,124 | | | $ | 238,768 | | | $ | 249,575 | | | $ | 268,015 | | | | | | |
| | Return on Assets(In thousands) |
The following table reconciles from rental income on our income statement to net operating income, and sets forth the calculation of return on assets. | | | | | | | | | | | | | | | | | | | | | | | | For The Years Ended December 31, | | | | | | | | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | | | | | Rental Income | | $ | 359,246 | | | $ | 376,255 | | | $ | 373,135 | | | $ | 386,871 | | | $ | 402,179 | | Cost of operations | | | 114,831 | | | | 127,371 | | | | 121,224 | | | | 123,108 | | | | 125,340 | | | | | | | Net operating income | | $ | 244,415 | | | $ | 248,884 | | | $ | 251,911 | | | $ | 263,763 | | | $ | 276,839 | | | | | | | As of December 31, | | | | | | | | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | | | | | Land | | $ | 827,092 | | | $ | 802,949 | | | $ | 793,569 | | | $ | 789,531 | | | $ | 789,227 | | Buildings and improvements | | | 2,346,958 | | | | 2,219,397 | | | | 2,215,515 | | | | 2,226,881 | | | | 2,262,512 | | Pre-depreciation cost of real estate facilities | | $ | 3,174,050 | | | $ | 3,022,346 | | | $ | 3,009,084 | | | $ | 3,016,412 | | | $ | 3,051,739 | | | | | | | | | | | | | Return on assets (5) | | | 7.7% | | | | 8.2% | | | | 8.4% | | | | 8.7% | | | | 9.1% | | | | | | |
| (1) | Per share amounts are computed using additional dilutive shares related tonon-controlling interests and RSUs. |
| (2) | Core FFO per share is anon-GAAP financial measure that assists investors and analysts in evaluating our comparative operating performance and trends. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under Funds from Operations and Core Funds from Operations included in our Annual Report on Form10-K for the definition and reconciliation of Core FFO. Other REITs may use different methods for calculating Core FFO and, accordingly, the Company’s Core FFO may not be comparable to other real estate companies’ Core FFO. |
| (3) | Funds Available for Distribution (FAD) per share is anon-GAAP financial measure representing Core FFO per share i) less per share recurring capital improvements which maintain the assets’ value, as well as tenant improvements and lease commissions, and ii) eliminating per sharenon-cash stock-based compensation and other income and expense items included in Core FFO per share. Like Core FFO per share, management considers FAD per share to be a useful measure for investors to evaluate the Company’s operating performance. FAD per share should not be viewed as a substitute for net income per share as defined by GAAP. |
| (4) | Earnings before interest, taxes, depreciation and amortization or “EBITDA” is anon-GAAP financial measure that represents net income prior to the impact of depreciation and interest expense. Management believes that EBITDA is frequently used by analysts and investors as a measure of valuation and to assess the Company’s performance over time. |
| (5) | Return on assets is anon-GAAP financial measure representing the ratio of net operating income (rental income less cost of operations, which excludes depreciation) topre-depreciation cost of real estate facilities. Management believes that this measure is useful in evaluating the Company’s earnings relative to the associated accumulated investment over time. |
PS Business Parks • 2018 Proxy Statement • 64
Appendices | | | | | Appendix B: Calculation of 2016 CEO compensation for purposes of year-over-year comparisons and analyses |
PS Business Parks • 2018 Proxy Statement • 65
As Joseph Russell and Maria Hawthorne each held the position of CEO for exactly six months in 2016, and a portion of Ms. Hawthorne’s total 2016 total compensation was attributable to her service prior to being appointed CEO, total CEO compensation in 2016 was calculated as follows to allow for meaningful year-over-year comparisons and analyses: | | | | | | | | | | | | | | Component of Compensation | | Mr. Russell | | | Ms. Hawthorne | | | Total | | | | | | Base salary (January to June 2016 for Mr. Russell and July to December 2016 for Ms. Hawthorne, including the full holiday emolument she received) | | | $333,328 | | | | $225,801 | | | | $559,129 | | | | | | Cash bonus (100% of Mr. Russell’s prorated bonus and 50% of Ms. Hawthorne’s full bonus) 1 | | | 283,750 | | | | 225,000 | | | | 508,750 | | | | | | RSU awards under the LTEIP (50% from each)1 | | | 1,401,000 | | | | 672,480 | | | | 2,073,480 | | | | | | Other compensation (50% from each) | | | 5,300 | | | | 5,300 | | | | 10,600 | | | | | | Total 2016 CEO Compensation for Comparison Purposes | | | | | | | | | | | $3,151,959 | |
| 1 | In connection with Mr. Russell’s resignation as the CEO, the Compensation Committee determined that Mr. Russell was entitled to, and actually received, (i) the full award earned under the LTEIP with respect to 2016 performance and (ii) 50% of his 2016 target cash bonus. | |
The above calculation of 2016 CEO compensation does not include the options and RSU awards to Ms. Hawthorne in connection with her promotion to CEO. The following table shows all compensation paid to Mr. Russell and Ms. Hawthorne in 2016. Please also see the Summary Compensation Table and its footnotes on page 44. | | | | | | | | | | | | | | Component of Compensation | | Mr. Russell | | | Ms. Hawthorne | | | Total | | | | | | Base salary (including Ms. Hawthorne’s holiday emolument) | | | $333,328 | | | | $425,801 | | | | $759,129 | | | | | | Cash bonus | | | 283,750 | | | | 450,000 | | | | 733,750 | | | | | | Options granted in connection with Ms. Hawthorne’s promotion | | | - | | | | 235,250 | | | | 235,250 | | | | | | RSUs granted in connection with Ms. Hawthorne’s promotion | | | - | | | | 1,057,600 | | | | 1,057,600 | | | | | | RSU awards under the LTEIP | | | 2,802,000 | | | | 1,344,960 | | | | 4,146,960 | | | | | | Other compensation | | | 10,600 | | | | 10,600 | | | | 21,200 | | | | | | Total 2016 Compensation to Mr. Russell and Ms. Hawthorne | | | | | | | | | | | $6,953,889 | |
PS Business Parks • 2018 Proxy Statement • 66
ANNUAL MEETING OF SHAREHOLDERS OF
PS BUSINESS PARKS, INC.
April 26, 2016
24, 2018
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20830300000000000000 8 042616
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20933000000000000000 0 042418
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL THE LISTED NOMINEES AND FOR PROPOSALS 2 AND 3. x PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE.
1. Election of Directors
FOR ALL NOMINEES FOR WITHHELD ALL NOMINEES AUTHORITY
FOR (See ALL instructions EXCEPT below)
NOMINEES:
Ronald L. Havner, Jr. Joseph D. Russell, Jr. Jennifer Holden Dunbar James H. Kropp Sara Grootwassink Lewis Gary E. Pruitt Robert S. Rollo Peter Schultz
INSTRUCTIONS: To withhold authority 2. Advisory vote to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here:
approve executive compensation. FOR AGAINST ABSTAIN 2.
NOMINEES: 3. Ratification of appointment of Ernst & Young LLP, independent FOR ALL NOMINEES O O Maria Ronald R L . .Hawthorne Havner, Jr. registered public accountants, to audit the accounts of PS WITHHOLD AUTHORITY O Jennifer Holden Dunbar Business Parks, Inc. for the fiscal year ending December 31, 2016.
FOR AGAINST ABSTAIN 3. Advisory vote to approve executive compensation.
ALL NOMINEES O James H. Kropp 2018.
O Sara Grootwassink Lewis 4. Other matters: In their discretion, the Proxies and/or the Trustee are authorized to FOR (See ALL instructions EXCEPT below) O Gary E. Pruitt vote upon such other business as may properly come before the meeting or any O Robert S. Rollo adjournment or postponement thereof.
O Joseph D. Russell, Jr. O Peter Schultz
The undersigned acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement dated March 24, 2016.
23, 2018.
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PS BUSINESS PARKS, INC.
701 Western Avenue Glendale, California 91201-2349
This Proxy/Instruction Card is Solicited on Behalf of the Board of Directors
The undersigned, a record holder of Common Stock of PS Business Parks, Inc. and/or a participant in the PS 401(k)/Profit Sharing Plan (the “401(k) Plan”), hereby (i) appoints Ronald L. Havner, Jr. and Joseph D. Russell, Jr.,Maria R. Hawthorne, or either of them, with power of substitution, as Proxies, to appear and vote, as designated on the reverse side, all the shares of Common Stock held of record by the undersigned on March
1, 2016,2018, at the Annual Meeting of Shareholders to be held on April 26, 201624, 2018 (the “Annual Meeting”), and any adjournments thereof, and/or (ii) authorizes and directs the trustee of the 401(k) Plan (the “Trustee”) to vote or execute proxies to vote, as instructed on the reverse side, all the shares of Common Stock credited to the undersigned’s account under the 401(k) Plan on March 1, 2016,2018, at the Annual Meeting and any adjournments thereof. In their discretion, the Proxies and/or the Trustee are authorized to vote upon such other business as may properly come before the meeting.
THE PROXIES AND/OR THE TRUSTEE WILL VOTE ALL SHARES OF COMMON STOCK TO WHICH THIS PROXY/INSTRUCTION CARD RELATES IN THE MANNER DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO COMMON STOCK HELD OF RECORD BY THE UNDERSIGNED, THE PROXIES WILL VOTE SUCH COMMON STOCK FOR THE ELECTION OF ALL NOMINEES LISTED ON THE REVERSE SIDE AND IN FAVOR OF PROPOSALS 2 AND 3. IF NO DIRECTION IS GIVEN WITH RESPECT TO COMMON STOCK CREDITED TO THE UNDERSIGNED’S ACCOUNT UNDER THE 401(k) PLAN, THE TRUSTEE WILL VOTE SUCH COMMON STOCK IN THE SAME PROPORTION AS SHARES FOR WHICH VOTING INSTRUCTIONS HAVE BEEN RECEIVED, UNLESS REQUIRED BY LAW TO EXERCISE DISCRETION IN VOTING SUCH SHARES.
401(k) PlanParticipants--The undersigned, if a participant in the 401(k) Plan, hereby directs Wells Fargo Bank, N.A. as Trustee for the 401(k) Plan to vote all Common Shares allocated to my account as of March 1, 2016.2018. I understand that I am to mail this confidential voting instruction card to American Stock Transfer & Trust Co. (“AST”), acting as tabulation agent and that my instructions must be received by AST no later than 7:00 a.m., Pacific Daylight Time, on April 22, 2016.20, 2018. If my instructions are not received by that date, or if the voting instructions are invalid because this form is not properly signed and dated, the shares in my account will be voted in accordance with the terms of the 401(k) Plan document.
(continued and to be signed on reverse side)
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