DEFA14A: Chatham Lodging Trust Addresses ISS Concerns, Urges Shareholders to Approve Equity Incentive Plan Amendment

Chatham Lodging Trust supplements its proxy statement to address concerns raised by Institutional Shareholder Services (ISS) regarding the proposed amendment to the company's Equity Incentive Plan, reiterating the Board's recommendation for shareholders to vote in favor of the proposal.

Summary

• Chatham Lodging Trust has issued a supplement to its proxy statement in response to an ISS report regarding Proposal 4, which seeks approval for an amendment to the company's Equity Incentive Plan.
• While ISS recommended voting for all other proposals, it advised against approving the Equity Incentive Plan amendment.
• The Board of Trustees is reiterating its recommendation that shareholders vote FOR the approval of Proposal 4.
• The company believes the Equity Incentive Plan is crucial for aligning the interests of employees, trustees, and consultants with those of shareholders, supporting recruitment and retention, and reinforcing its pay-for-performance philosophy.
• If the proposal fails, the company anticipates needing to use more costly methods, such as cash compensation, to retain employees and officers, which would reduce alignment of interests.
• The current program has received strong shareholder support, with over 95% of votes cast in favor of say-on-pay proposals in 2023 and 2024.
• As of March 10, 2025, there were 121,462 Common Shares available for future issuance under the plan.
• The company's three-year average burn rate of 0.78% is below ISS's benchmark of 1.05%.
• The Board is recommending adding 2,150,000 Common Shares to the Equity Incentive Plan, representing approximately 4.20% of the total outstanding Common Shares and OP Units, which is expected to provide for a plan duration of approximately 2 to 3 years.
• The company highlights responsible grant practices, including a majority of NEOs' compensation being delivered in equity, vesting over at least three years, performance-based equity awards, a clawback policy, and robust share ownership guidelines.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While there's a disagreement with ISS, the company highlights strong shareholder support for its compensation practices and emphasizes the benefits of the Equity Incentive Plan. The company is proactively addressing concerns.

Positives

• The company's compensation program effectively links pay to long-term corporate performance, as recognized by ISS's recommendation to vote FOR the say-on-pay proposal.
• The Equity Incentive Plan aligns the interests of employees, trustees, and consultants with those of shareholders.
• The plan supports the recruitment and retention of high-caliber employees, trustees, and consultants.
• The plan reinforces the company's pay-for-performance philosophy.
• The company has demonstrated responsible grant practices, including a majority of NEOs' compensation being delivered in equity awards that vest over at least three years.
• The company has a clawback policy that applies to both cash and equity awards.
• The company has robust share ownership guidelines, including 6x base salary for the CEO.
• The current program has received strong shareholder support, with over 95% of votes cast in favor of say-on-pay proposals in 2023 and 2024.

Negatives

• ISS recommended voting against Proposal 4, the amendment to the Equity Incentive Plan.
• If the proposal is not approved, the company may need to use more costly methods, such as cash compensation, to retain employees and officers, which would reduce alignment of interests.

Risks

• Failure to approve the Equity Incentive Plan amendment could lead to increased costs for employee retention and less alignment of interests between officers/employees and shareholders.
• The company may face challenges in attracting and retaining top talent if the Equity Incentive Plan is not adequately funded.

Future Outlook

The company expects the proposed addition of 2,150,000 Common Shares to the Equity Incentive Plan to provide for a plan duration of approximately 2 to 3 years.

Management Comments

• The Board reiterates its recommendation that you vote FOR the approval of Proposal 4.
• The Equity Incentive Plan is an integral part of our overall compensation strategy.
• Without the availability of shares for award under the Equity Incentive Plan, for the Company to continue to align pay for performance, it would need to use cash in lieu of equity, which would increase costs to shareholders and provide for less long-term alignment of officer and employee interests with those of shareholders.

Industry Context

Equity incentive plans are a common tool used by REITs like Chatham Lodging Trust to align management's interests with those of shareholders and to attract and retain talent in a competitive market.

Comparison to Industry Standards

• The company's three-year average burn rate of 0.78% is below the ISS benchmark of 1.05%, suggesting responsible equity grant practices compared to industry peers.
• Many REITs use equity compensation extensively, but Chatham's focus on performance-based awards (60% of equity awards) aligns it with best practices in executive compensation.

Stakeholder Impact

• Shareholders: Approval of the Equity Incentive Plan amendment is intended to align management's interests with shareholder value creation.
• Employees: The Equity Incentive Plan is designed to attract, retain, and motivate employees through equity-based compensation.
• Trustees: The Equity Incentive Plan also includes trustees, aligning their interests with shareholders.

Next Steps

• Shareholders will vote on Proposal 4 at the 2025 Annual Meeting on May 6, 2025.
• The Board of Trustees hopes shareholders will consider the supplementary facts before voting their shares.

Key Dates

Keywords

Equity Incentive Plan, Proxy Statement, Shareholder Vote, Compensation, Chatham Lodging Trust, ISS, Amendment, Shares, Burn Rate, NEOs