DEFA14A: UDR Board Defends Executive Pay Amid ISS Opposition, Recommends 'For' Vote on Say-on-Pay Proposal

UDR, Inc. urges shareholders to vote for the advisory vote on executive compensation, despite a recommendation against it from Institutional Shareholder Services (ISS), highlighting strong alignment between pay and performance.

Summary

• UDR, Inc. is addressing a recommendation from Institutional Shareholder Services Inc. (ISS) that shareholders vote against the company's Say on Pay proposal at the upcoming annual meeting on May 23, 2024.
• The company's Board of Directors strongly disagrees with ISS's assessment, emphasizing that the executive compensation program, particularly for the CEO, is closely aligned with shareholder interests and is performance-based.
• Glass Lewis & Co. LLC has recommended a 'FOR' vote on the Say on Pay Proposal.
• UDR highlights that 92% of the CEO's compensation is performance-based and the structure of the executive compensation program has remained consistent for the past eight years.
• The company points out that ISS has recommended a 'FOR' vote on their Say on Pay proposal in the 13 years prior to this year.
• The Board believes that the executive compensation program effectively aligns pay with performance and incentivizes long-term value creation for shareholders.
• ISS's negative recommendation is primarily based on a perceived misalignment of pay for performance, which UDR disputes.
• UDR's Long-Term Incentive Plan is driven by relative performance metrics and includes no time-based awards.
• The CEO has elected to take 100% of his short-term compensation in equity over the past three years, further aligning his interests with shareholders.
• UDR clarifies that the total compensation disclosed in the Summary Compensation Table does not equal earned compensation, and the value of earned compensation as of December 31, 2023, was significantly below granted compensation.
• From 2021-2023, the CEO's earned compensation was 19% below granted compensation, and the actual value as of December 31, 2023, was 55% below granted compensation.
• UDR notes that ISS incorrectly included a one-time $7 million equity grant to the CEO, which was voluntarily forfeited in 2023, inflating ISS's view of compensation by 26%.
• The CEO's 2023 compensation multiple versus ISS's peer group median and UDR's peer group median was 1.35x and 1.20x, respectively.
• UDR defends this level of compensation based on the CEO's 22-year tenure and strong track record of producing total shareholder returns exceeding the Nareit Equity REITs Total Return Index.
• The Committee believes that including a 1-year absolute Funds from Operations as Adjusted (FFOA) per share metric in the LTI is warranted, despite some concerns about overlapping with the STI.
• The Board of Directors recommends that shareholders vote FOR the advisory vote on executive compensation (Item No. 2).

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company faces opposition from ISS, it defends its compensation practices and highlights positive aspects such as the CEO's equity-based compensation and the support from Glass Lewis. The document is primarily defensive in nature.

Positives

• Glass Lewis recommended a 'FOR' vote on UDR's Say on Pay Proposal.
• UDR's CEO has elected to take 100% of his short-term compensation in equity over the past three years, aligning his interests with shareholders.
• UDR's Long-Term Incentive Plan is primarily driven by relative performance metrics versus its apartment peer group or an index and includes no time-based awards.
• The CEO's 2023 compensation multiple versus ISS's peer group median and UDR's peer group median was 1.35x and 1.20x, respectively, which UDR believes is warranted based on his tenure and performance.
• Approximately 90% of UDR shareholders have, on average, voted FOR the Say on Pay since Say on Pay was included on the ballot 13 years ago.

Negatives

• ISS has recommended that shareholders vote AGAINST UDR's Say on Pay proposal.
• ISS perceives a misalignment of pay for performance, which UDR disputes.
• ISS incorrectly included a one-time $7 million equity grant to the CEO, which was voluntarily forfeited in 2023, inflating ISS's view of compensation by 26%.

Risks

• The risk exists that shareholders may follow ISS's recommendation and vote against the Say on Pay proposal.
• Reputational damage could occur if the company fails to adequately address concerns about executive compensation.
• There is a risk that the perceived misalignment of pay and performance could negatively impact investor confidence.

Future Outlook

The company expects its executive compensation program to continue to effectively align pay with performance and incentivize the continued creation of long-term value for shareholders.

Management Comments

• The Compensation and Management Development Committee of UDR's Board of Directors feels strongly that the executive compensation program has in the past and is expected in the future to continue to effectively align pay with performance and incentivize the continued creation of long-term value for shareholders.
• The Committee believes in strongly aligning performance with compensation.
• The Committee believes better shareholder alignment is driven by the inclusion of a 1-year FFOA per share metric.

Industry Context

The document highlights the debate around executive compensation in the REIT industry, particularly the use of performance-based metrics versus time-based incentives. It also references Institutional Investor LLC's annual polling of investors, which ranks CEOs in the REIT space.

Comparison to Industry Standards

• The document compares UDR's compensation practices to its peer group, noting that most of its peer group have a lower amount of at risk compensation.
• It also mentions that 73% of UDR's peer group utilized time-based incentives in their LTIs in 2022, with an average weighting of 30%.
• The CEO is ranked as a top-3 CEO in the real estate investment trust (REIT) space in 2023 (out of approximately 150 REITs) based on Institutional Investor LLCs annual polling of investors.

Stakeholder Impact

• The outcome of the Say on Pay vote could impact shareholder confidence and the company's reputation.
• The executive compensation program is designed to incentivize management to create long-term value for shareholders.

Next Steps

• Shareholders will vote on the Say on Pay proposal at the annual meeting on May 23, 2024.

Key Dates

Keywords

executive compensation, Say on Pay, ISS, proxy statement, shareholders, UDR, compensation, performance, FFOA, REIT