DEFA14A: JBG SMITH Addresses Shareholder Concerns on Executive Pay, Seeks Support for Say-on-Pay Proposal

JBG SMITH's compensation committee is addressing shareholder concerns regarding executive compensation, particularly focusing on the reset of the book-up price for time-based LTIP Units, and highlighting changes made to the compensation program in response to shareholder feedback.

Summary

• JBG SMITH's compensation committee is seeking shareholder support for its Say-on-Pay proposal, addressing concerns raised by shareholders and ISS regarding executive compensation.
• The primary concern revolves around the reset of the book-up price for time-based LTIP Units, which ISS views as a problematic amendment to in-flight equity awards.
• The committee clarifies that the reset was necessary due to tax requirements and did not alter performance goals, vesting conditions, or the economic value of the LTIP Units.
• The reset impacted over 120 participants in the equity incentive program, with the additional non-cash compensation expense being less than 1.5% of the grant date fair value of equity awards issued during the period when the impacted awards were granted.
• The committee also highlights several changes made to the compensation program in response to shareholder feedback, including reducing the performance period for AO LTIP Units, incorporating new LTIP performance metrics, and improving NOI short-term incentive disclosure.
• The committee believes these changes demonstrate responsiveness to shareholder concerns and warrants support for the Say-on-Pay proposal.

Sentiment

Score: 6

Explanation: The document attempts to address negative feedback and justify compensation decisions, indicating a defensive but ultimately proactive stance. The sentiment is neutral to slightly positive as the company is trying to be responsive to shareholder concerns.

Positives

• The compensation committee demonstrated responsiveness to shareholder concerns following last year's Say-on-Pay vote, leading ISS to recommend a vote FOR all trustee nominees.
• The company reduced the performance period for AO LTIP Units by 50%, from 10 years to five years.
• A three-year post-vest holding period was added to the time-based LTIP Units.
• The band around the executives' target bonus was increased to require a higher degree of outperformance for maximum payout.
• The NOI short-term incentive goal disclosure was improved.
• The committee exercised its discretion to reduce the 2024 short-term incentive bonus payment below the amount earned due to share price performance.
• The composition of long-term equity awards was changed to comprise 60% performance awards and 40% time-based awards for 2025.

Negatives

• ISS recommended against the Say-on-Pay Proposal primarily due to the reset of the book-up price for time-based LTIP Units, which it considers a problematic practice.
• Adverse market conditions during and following the pandemic prevented the monetization of outstanding LTIP Units, even after vesting.

Risks

• The company acknowledges that forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations.
• These risks and uncertainties include those detailed in JBG SMITH's filings with the Securities and Exchange Commission, including the Risk Factors section of JBG SMITH's Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Future Outlook

The letter contains forward-looking statements regarding JBG SMITH's current expectations, which are subject to risks and uncertainties.

Management Comments

• We encourage you to review this supplement, as well as the detailed information provided in the Compensation Discussion and Analysis section of the Company's 2025 Proxy Statement, before you cast your vote on our Say-On-Pay Proposal.
• Simply stated, we listened, and we acted to address our shareholders' concerns.
• The Committee believes it would be unfair to deprive the executives and key employees of the value of their time-based equity awards solely due to a tax requirement (i.e., the book up).

Industry Context

The document mentions that the practice of resetting the book-up price has been implemented at other REITs without ISS criticism and with shareholder support, suggesting this is not an uncommon practice within the industry.

Comparison to Industry Standards

• The document mentions that other REITs have implemented the practice of resetting the book-up price without ISS criticism and with shareholder support.
• However, no specific companies or projects are named for direct comparison.

Stakeholder Impact

• The document directly addresses shareholders, seeking their support for the Say-on-Pay proposal.
• The equity incentive program impacts over 120 employees, including key executives.
• The compensation decisions and changes aim to align executive compensation with shareholder interests.

Next Steps

• Shareholders are asked to vote on the Say-on-Pay proposal.

Key Dates

Keywords

executive compensation, Say-on-Pay, LTIP Units, shareholder engagement, book-up price, compensation committee, JBG SMITH, equity awards