Item 5.02
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Departure of Directors or Certain Officers; Election
of Directors; Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers.
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The Compensation
Committee (the “Committee”) of the Board of Directors of Realty Income
Corporation (the “Company”) recently engaged in a review of its incentive
compensation program with the assistance of its independent compensation
consultant, FPL Associates. On February 14, 2017, the Committee approved a 2017
bonus program (the “2017 Bonus Program”) and 2017 long term incentive program
(the “2017 LTIP”) applicable to the Company’s named executive officers (the
“executives”). In connection with the approval of these programs, the Company and
John Case, the Company’s Chief Executive Officer, entered into an amendment to
Mr. Case’s employment agreement with the Company.
Bonus Program
The 2017 Bonus
Program is intended to tie the Company’s executives’ annual incentive awards
closely to the Company’s financial performance. Each executive is eligible to
participate in the 2017 Bonus Program.
Under the 2017 Bonus
Program, the executives will be eligible to earn annual cash incentive awards based
on the Company’s achievement in 2017 of performance goals relating to (i) adjusted
FFO per share; (ii) portfolio occupancy; and (iii) fixed charge coverage ratio,
as well as based on the achievement of goals related to the executive’s
individual performance. In determining each executive’s actual annual
incentive award under the 2017 Bonus Program, the goals will be weighted as
follows:
Criteria
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Weighting
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Adjusted FFO per share
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40%
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Fixed charge coverage ratio
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20%
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Portfolio occupancy
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10%
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Individual
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30%
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In addition, the
Committee approved the target bonus opportunity under the 2017 Bonus Program for
each executive, as set forth below, with the actual bonus ranging from 0% to
approximately 200% of the target bonus.
Executive
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Target Bonus
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John
Case
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$1,600,000
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Sumit
Roy
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$825,000
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Paul
Meurer
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$593,750
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Michael
Pfeiffer
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$450,000
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Annual incentive
awards under the 2017 Bonus Program will be payable in cash. Each executive
must be employed by the Company through the date of payment in order to be
eligible to receive an annual incentive award under the program, except as may
otherwise be provided in a written agreement between the executive and the
Company.
Long Term Incentive
Program
The 2017 LTIP is intended to
align the interests of management with those of stockholders and to link
executive compensation to the Company’s long-term performance. The 2017 LTIP
consists of awards of Performance Shares and time-vesting restricted stock (or
restricted stock units (“RSUs”)) to the executives.
Performance
Shares
General
. The
Committee approved the grant to each executive of Performance Share awards in
tandem with dividend equivalent rights. Pursuant to the Performance Share
awards, each participant is eligible to vest in and receive a number of shares
of the Company’s common stock ranging from 0% to approximately 200% of the
target number of Performance Shares granted and set forth in the table below
(for each executive, the “Target Performance Shares”), based on the attainment
of relative total shareholder return (“TSR”) goals, debt-to-EBITDA ratio and
dividend per share growth rate goals during the performance period running from
January 1, 2017 through December 31, 2019 (the “Performance Period”). The approximate
value of the Target Performance Shares granted to each executive is as follows:
Executive
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Value of Target Number of
Performance Shares Granted
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John
Case
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$3,500,000
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Sumit
Roy
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$1,652,778
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Paul
Meurer
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$918,750
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Michael
Pfeiffer
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$661,111
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In addition, each
Performance Share award entitles its holder to a cash payment equal to the
aggregate dividends that would have been paid on the total number of
Performance Shares that vest, had such shares been outstanding on the record
date(s) that occur over the period from January 1, 2017 through the date on
which the shares are issued, if any. Any right to dividends with respect to
Performance Shares that do not vest are forfeited.
Vesting and
Payment
. The number of Performance
Shares that vest is dependent on (i) the Company’s TSR achieved during the
Performance Period relative to the TSR achieved by the companies in the MSCI
REIT Index, (ii) the Company’s TSR achieved during the Performance Period relative
to the TSR achieved by the J.P. Morgan Net Lease companies, (iii) the Company’s
debt-to-EBITDA ratio achieved during the Performance Period and (iv) the
Company’s dividend per share growth rate achieved during the Performance Period
(each, a “Performance Objective”), as well as the satisfaction of continued employment
requirements. In determining the number of Performance Shares that performance-vest,
the Company’s relative TSR as compared to the MSCI REIT Index companies and the
J.P. Morgan Net Lease companies are weighted approximately 45% and 26%, respectively,
and the debt-to-EBITDA ratio Performance Objective and the dividend per share growth
rate Performance Objective are weighted approximately 13% and 16%, respectively.
Fifty percent (50%), one hundred percent (100%) and two hundred percent (200%)
of the Target Performance Shares associated with each Performance Objective will
be eligible to vest based on the achievement of minimum, target and maximum,
respectively, goals related to each Performance Objective.
Additionally, the
number of Performance Shares that performance-vest based on the achievement of
the performance goals will need to also satisfy the service-based vesting
condition as to 50% of such shares on January 1, 2020 and as to 50% of such
shares on January 1, 2021 in order to be vested in full, subject to the
executive’s continued employment. The Performance Share awards are subject to
accelerated vesting on substantially the same terms as apply to similar
Performance Share awards granted to executives of the Company under the LTIP
adopted by us in 2014, 2015 and 2016.
Time-Based Restricted
Shares or RSUs
In addition, as
part of the 2017 LTIP, the Committee expects to approve in 2018 grants to each
executive of restricted stock (or RSU) awards subject to service-based vesting
conditions in the dollar-denominated amounts set forth in the table below.
Executive
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2017 Restricted Stock/RSU Awards
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John
Case
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$1,000,000
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Sumit
Roy
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$472,222
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Paul
Meurer
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$262,500
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Michael
Pfeiffer
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$188,889
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Each such award
vests over a period of four years following the grant date, subject to
continued employment. The awards are subject to accelerated vesting on
substantially the same terms as set forth in the applicable previously-filed
form agreement.
Amendment to Case
Employment Agreement
On February 14,
2017, the Company and Mr. Case entered into an amendment (the “Amendment”) to Mr.
Case’s Amended and Restated Employment Agreement, dated September 3, 2013 (the
“Original Employment Agreement”). The Amendment provides that Mr. Case may
earn an annual cash performance bonus targeted at no less than 150% of Mr.
Case’s base salary, reduced from 200% under the Original Employment Agreement. In
addition, the Amendment removes the provision under the Original Employment
Agreement which provided that no less than 50% of the annual equity awards
granted to Mr. Case will be time-based awards.
On February 14,
2017, the Board of Directors of the Company (the “Board”), approved the Second
Amendment to the Realty Income Corporation 2012 Incentive Award Plan (the
“Second Amendment”).
The Second
Amendment institutes minimum vesting provisions on options and stock
appreciation rights granted under the 2012 Incentive Award Plan. Pursuant to
the Second Amendment, such awards shall vest no earlier than the eighteen (18)
month anniversary of the date the award is granted, subject to a limited
basket of 5% of shares of the Company’s Common Stock authorized for grant under
Plan and the Plan administrator’s authority to accelerate the vesting of awards
in connection with death, disability, termination of service or the
consummation of a change in control.
The foregoing
description of the Second Amendment is not, and does not purport to be,
complete and is qualified in its entirety by reference to a copy of the Second
Amendment filed as Exhibit 10.1 hereto and incorporated herein by reference.
Item
9.01 Financial
Statements and Exhibits.
(d) Exhibits
Exhibit No.
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Description of Exhibit
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10.1
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Second
Amendment to Realty Income Corporation 2012 Incentive Award Plan
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