UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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EQUITY RESIDENTIAL
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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2017 Proxy Statement and
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Annual Meeting of
Shareholders
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Notice of 2017 Annual Meeting of Shareholders
April 27, 2017
Dear Fellow Shareholders,
You are cordially invited to attend Equity Residentials 2017 Annual Meeting of Shareholders. This years meeting will be held on Thursday,
June 15, 2017 at 8:00 a.m. at Two North Riverside Plaza, Suite 500, Chicago, Illinois 60606, at which time shareholders of record at the close of business on March 31, 2017 will be asked to:
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Elect twelve trustees to a
one-year
term;
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Ratify our selection of Ernst & Young LLP as our independent auditor for 2017;
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Approve our executive compensation;
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Approve the frequency of the vote on executive compensation; and
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Consider the shareholder proposal to allow shareholders to amend the Companys Bylaws and any other business properly brought before the meeting.
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Your vote is very important. Whether or not you attend the meeting in person, we urge you to vote as soon as possible. Instructions on how to vote are
contained in the Proxy Statement.
Our Board of Trustees values your opinion as a shareholder and appreciates your continued support of Equity
Residential.
Sincerely,
David J. Neithercut
President and Chief Executive Officer
Bruce C. Strohm
Executive
Vice President, General Counsel and Corporate Secretary
TABLE OF CONTENTS
PROXY STATEMENT
This Proxy Statement and related proxy materials
are being made available to shareholders of Equity Residential (Equity Residential or the Company) on or about April 27, 2017 in connection with the solicitation by our Board of Trustees (the Board) of
proxies to be voted at the Companys 2017 Annual Meeting of Shareholders (the Annual Meeting) to be held on Thursday, June 15, 2017 at 8:00 a.m. at Two North Riverside Plaza, Suite 500, Chicago, Illinois 60606.
SUMMARY OF MATTERS FOR SHAREHOLDER VOTING
At this years Annual Meeting, we are asking our shareholders to vote on the following matters:
Proposal 1: Election of Trustees
The Board recommends a vote
FOR
the election of the following nominees for trustee (the Trustees): Samuel Zell, David J. Neithercut,
John W. Alexander, Charles L. Atwood, Linda Walker Bynoe, Connie K. Duckworth, Mary Kay Haben, Bradley A. Keywell, John E. Neal, Mark S. Shapiro, Gerald A. Spector and Stephen E. Sterrett.
Proposal 2: Ratification of Ernst & Young LLP as Independent Auditor for 2017
The Board recommends a vote
FOR
this proposal.
Proposal 3: Advisory Approval of Executive Compensation
The Board recommends a vote
FOR
this proposal.
Proposal 4: Advisory Approval of Frequency of Vote on Executive Compensation
The Board recommends allowing shareholders the right to vote on Executive Compensation every year (as opposed to every 2 or 3 years).
Proposal 5: Shareholder Proposal to Allow Shareholders to Amend the Companys Bylaws
The Board recommends a vote
AGAINST
this proposal.
1
GOVERNANCE OF THE COMPANY
Corporate Governance
The
Company is dedicated to establishing and maintaining high standards of corporate governance. The Board has implemented many corporate governance measures over the years designed to serve the interests of our shareholders and further align the
interests of trustees and management with those of our shareholders. Below are some of the Companys corporate governance highlights:
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✓ 10 of 12 Trustee Nominees are Independent
✓ Annual Election of Trustees
✓ Majority Voting for Trustees
✓ Independent Lead Trustee
✓ Independent Board Committees
✓ Separate Chairman & CEO
✓ Trustees Meet in Executive Session without Management
✓ Risk Oversight by Board and Committees
✓ Annual Board Self-Assessment Process
✓ Ongoing Board Refreshment Process
✓ Active Shareholder Engagement
✓ Regular Succession Planning
✓ No Employment Agreements with Executives
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✓ Executive Compensation Driven by Pay for Performance Philosophy
✓ Prohibition against Hedging of Company shares
✓ No Shareholder Rights Plan
✓ Bylaws include Proxy Access Nominating Provisions
✓ Internal Disclosure Committee for Financial Reporting
✓ Share Ownership Guidelines for Trustees and Executives
✓ Publish Annual Corporate Social Responsibility and Sustainability Report
✓ Disclosure of Political Contribution Policy and Expenditures
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Board of Trustees
Our business and affairs are managed under the direction of the Board of Trustees. Members of the Board are kept informed of the
Companys
business through discussions with the Chairman, the Chief Executive Officer and other officers, by reviewing materials provided to them and by participating in meetings of the Board and its committees. Board members have complete access to the
Companys management team and our independent auditor.
The Board and each of the key committees Audit, Compensation and Corporate Governance
also have authority to retain, at the Companys expense, outside counsel, consultants or other advisors in the performance of their duties. The Companys Corporate Governance Guidelines require that a majority of the trustees be
independent within the meaning of the New York Stock Exchange (NYSE) listing standards.
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KEY CORPORATE GOVERNANCE DOCUMENTS
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Please visit the Companys website at www.equityapartments.com in the investor
section under Corporate Governance to view the following documents:
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Declaration of
Trust
Bylaws
Committee Charters
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Corporate
Governance Guidelines
Code of Ethics and Business Conduct
Political Contributions Policy
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These documents are also available free of charge by writing to Equity
Residential, Two North Riverside Plaza, Suite 400, Chicago, Illinois 60606, Attn: Corporate Secretary or by contacting Investor Relations by phone
(1-888-879-6356)
or
e-mail
(investorrelations@eqr.com). No information contained on the
Companys website is part of or incorporated into this Proxy Statement.
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Board Leadership Structure and Succession
Since the formation of the Company in 1993, we have separated the roles of Chairman of the Board and Chief Executive Officer. Samuel Zell has served as
Chairman since our initial public offering in August 1993 and is uniquely qualified to serve in this role. Mr. Zell is recognized as one of the founders of todays public real estate industry after creating two of the largest real estate
investment trusts (REITs) in the country: the Company, which has delivered a 13.4% annualized total shareholder return from its IPO in August 1993 through December 31, 2016, and Equity Office Properties Trust, which delivered a
17.4% annualized total shareholder return from its IPO in July 1997 through its sale in February 2007. Mr. Zell also founded Equity LifeStyle Properties, Inc. (NYSE: ELS), the largest REIT in its sector and one that has delivered a 16.0%
annualized total shareholder return from its IPO in February 1993 through December 31, 2016.
As our Chairman, Mr. Zell presides over meetings
of the Board of Trustees, stewards the Company, counsels senior management regarding strategy and provides them with a network of resources across the industry. David J. Neithercut, our President and CEO, sets the strategic direction for the Company
under the direction of the Board, is responsible for the
day-to-day
leadership and performance of the Company and sets the agenda for Board meetings in consultation with
the Chairman and our Lead Trustee. We believe the Company is well-served by our current leadership structure.
In the event the Chairman of the Board
and/or the CEO is unexpectedly unable to serve, (i) the Lead Trustee shall automatically be appointed to serve as the interim successor to the Chairman, (ii) the Chairman shall automatically be appointed to serve as the interim successor
to the CEO and (iii) the Lead Trustee will promptly call a meeting of the Board for the purposes of appointing a special committee to start the process to recommend candidates to serve as a permanent replacement for either or both positions.
Lead Trustee
Charles L. Atwood has been the
Companys Lead Trustee since March 2009. Mr. Atwoods duties as Lead Trustee include:
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Consistent and regular communication with the CEO regarding the
Boards oversight responsibilities
Ensuring that the Board performs its annual
evaluation of the CEOs performance
Serving as liaison between Chairman and the
other trustees
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Presiding at all executive sessions and any Board meetings in the
unlikely event the Chairman is not present
Participating with the CEO in planning
and setting agendas for Board meetings
Determining with the CEO the necessary
information trustees should receive regarding matters to be discussed at Board meetings
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Executive Sessions
Pursuant to the Companys Corporate Governance Guidelines, the
non-management
trustees of the Board meet in
regularly scheduled executive sessions without management. The independent trustees also meet in executive session at least once a year. In 2016, the
non-management
trustees held four executive sessions, and
the independent trustees held one executive session.
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The Boards Role in Risk Oversight
While risk management is primarily the responsibility of management, the Board provides overall risk oversight, both directly and through its committees, to
identify and assess the major risks the Company faces, and the policies and procedures for monitoring and controlling such risks.
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The Audit Committee reviews financial, accounting and internal control risks, in accordance with NYSE requirements, and has responsibility for the Companys Code of Ethics and Business Conduct.
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The Compensation Committee is responsible for overseeing the management of risks relating to the Companys leadership, management succession planning and compensation philosophy and programs.
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The Corporate Governance Committee reviews the Companys enterprise risk management, corporate governance risks, and is responsible for ensuring that the Board has the right mix of skills, experience and diversity
to perform all of its duties, including its overall risk oversight function.
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Each of these committees meets with and reviews material from
management and internal audit (as applicable) and reports to the Board, thereby keeping the entire Board fully informed and in a position to administer its overall risk management oversight responsibilities. Furthermore, at most regularly scheduled
Board meetings, the Board reviews key matters relating to the Companys finances, liquidity, IT security, operations and investment activity.
Assessment of Board Performance and Board Processes
Recognizing the importance of a rigorous self-evaluation process to allow boards to assess their performance and identify and address any potential gaps in
the boardroom, the Board conducts an annual self-assessment of the performance of the full Board, individual Board members and Board committees. The Chair of the Corporate Governance Committee is responsible for leading the evaluation process.
For the 2016 assessment, the Committee Chair conducted a confidential and
in-depth
interview with each of the trustees
to solicit their feedback. Following that, the Committee Chair discussed with each trustee individually his or her own evaluation and provided the full Board and Committees with feedback on their performance. The Lead Trustee interviewed each of the
trustees about their evaluation of the Committee Chair of the Corporate Governance Committee and provided the Committee Chair with feedback on performance. This annual evaluation process provides a way to track progress in certain areas targeted for
improvement from year to year and to identify opportunities to enhance the Board and Committees effectiveness. The assessments confirm whether the current Board leadership and structure continue to be optimal for the Company and are taken into
account by the Corporate Governance Committee in making its recommendations to the Board regarding trustee nominees.
Management Development and
Succession
The Boards goal, through the oversight of the Compensation Committee, is to have an ongoing program for effective leadership
development and succession for executive management. As reflected in the Companys Corporate Governance Guidelines, the Compensation Committee discusses with the CEO his recommendations for management development and succession for the
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Companys other executive officers. Additionally, the Compensation Committee oversees long range plans for management development and succession for the CEO.
The Boards executive succession plan involves conducting regular talent reviews, creating profiles of ideal candidates and selecting potential
successors expected to fit the needs of the Company over time. In implementing these plans, the Board believes that, at its core, succession planning: (i) is a board-driven, collaborative and continuous process; (ii) should take into
account the Companys long-term strategic goals; and (iii) involves building a talent-rich organization by attracting and developing the right people. Individuals who are identified as high potential leaders are given exposure and
visibility to Board members through formal presentations and informal events. Furthermore, for 2016, twenty-five percent of the assessment of the CEOs annual performance and ten percent of the assessment of the executive officers annual
performance were based on individual goals that include development, succession or leadership-oriented goals. In addition to their review of executive officer development and succession, the Board is regularly updated on key talent indicators for
the overall workforce, including diversity and other development programs.
Certain Relationships and Related Transactions
The Company has adopted a Code of Ethics and Business Conduct that applies to all trustees and employees. The purpose of the Code of Ethics and Business
Conduct is to promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable
disclosure in periodic reports required to be filed by the Company; and (iii) compliance with all applicable rules and regulations that apply to the Company and its officers, employees and trustees.
The Audit Committee has responsibility for reviewing the Companys written policies relating to the avoidance of conflicts of interest and reviewing any
proposed related party transactions. Pursuant to such policy, the Audit Committee, consisting solely of independent trustees, approved a transaction in July 2011 whereby ERP Operating Limited Partnership (the Operating Partnership), of
which the Company is the general partner, leases its corporate headquarters pursuant to a
ten-year
lease from an entity controlled by Mr. Zell. While the rules of the Securities and Exchange Commission
(SEC) classify this lease as a related-party transaction, the Company deems the lease to be immaterial and no different than any other office lease transaction that the Company could have entered into on arms-length terms at
the same time. Specifically, an independent commercial office brokerage firm confirmed in a report to the Audit Committee that at the inception of the lease, the lease had terms that were equivalent to, or more tenant-friendly than, any other
arms-length office lease with a
ten-year
term, entered into at the time, for similar space in Chicagos West Loop neighborhood. Furthermore, the lease does not, in the opinion of the Company and the
independent trustees, affect Mr. Zells ability to act in the best interests of the Company and its shareholders as the amount of lease income is insignificant for Mr. Zell in relation to his considerable net worth. Amounts incurred
by the Company for the office lease and related office facility services in 2016 totaled $2,741,632.
Trustee Resignation Policy
The Company has a majority vote standard for the election of trustees in uncontested elections with a trustee resignation policy which requires that any
trustee nominee who is not elected by a majority of votes cast must promptly tender his or her resignation to the Board. The Board would then decide within 90 days following certification of the shareholder vote, through a process managed by the
Corporate Governance Committee and excluding the nominee in question, whether
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to accept or reject the tendered resignation, or whether other action is recommended. The Board would promptly publicly disclose its decision and rationale.
Share Ownership Guidelines
In keeping with its
belief that aligning the financial interests of the Companys executive officers and trustees with those of the shareholders will result in enhanced shareholder value, the Board has established the following executive officer and trustee share
ownership guidelines:
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Position
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Minimum Share Ownership
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Trustees
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5x cash retainer
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CEO
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5x base salary
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Executive Vice Presidents
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3x base salary
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Senior
Vice Presidents
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1x
base salary
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Executive officers and trustees have three years from appointment or promotion to comply with the ownership requirements. All
of our executive officers and trustees have met their respective share ownership requirements or are in the permitted time frame to achieve such ownership.
The following equity interests count toward fulfillment of ownership guidelines provided that such equity interests have not been pledged as security for a
financing obligation:
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Partnership interests in the Operating Partnership (OP Units); and
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Restricted shares in the Company and restricted units in the Operating Partnership granted in connection with compensation awards. Restricted units are partnership interests that are convertible on a
one-for-one
basis into OP Units subject to certain vesting and other tax restrictions. Restricted shares and restricted units are collectively referred to in this Proxy
Statement as Share Awards.
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Securities Trading Policy and Prohibition against Hedging of Company Equity Securities
The Companys Securities Trading Policy sets forth guidelines and restrictions applicable to trustees and executive officers of the Company
regarding transactions involving Company equity securities. Pursuant to this policy, the Company regularly imposes a trading moratorium on all trustees and high level officers in advance of earnings releases, and otherwise trustees and officers are
restricted from trading whenever they have knowledge of material
non-public
information. Among other things, this policy also prohibits our trustees and executive officers from selling any Company equity
securities if he or she does not own the equity security at the time of sale (commonly called a short sale). This policy further prohibits trustees and executive officers from purchasing financial instruments that are designed to hedge
or offset any decrease in the market value of their Company equity securities.
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Corporate Social Responsibility
The Company is devoted to the incorporation of sustainability and social responsibility concepts in all aspects of its business and is especially proud of its
outstanding performance in the 2016 Global Real Estate Sustainability Benchmark (GRESB) Survey a globally-recognized third-party analysis of more than 750 real estate portfolios worldwide. For the second year in a row, the Company
was recognized by GRESB as a Global/Residential Listed Sector Leader the top performer in North America among all residential firms. In 2016, the Company also received the Residential Leader in the Light award from the National Association of
Real Estate Investment Trusts (NAREIT) in recognition of the Companys portfolio-wide sustainability initiatives. For further information, please see the Companys 2016 Corporate Social Responsibility and Sustainability Report
posted at www.equityapartments.com in the investor section under Sustainability.
Political Contributions Policy
The Company has a robust policy governing the approval of any political expenditures made by it. Under the policy, which is reviewed annually by the Corporate
Governance Committee, any political spending by the Company must be legitimately linked to the Companys business purposes and strategic intent, and approved by the Chief Executive Officer. The Corporate Governance Committee conducts an annual
review to ensure that all political spending under the policy is legitimately linked to the Companys business purpose and strategic intent. The policy, together with a disclosure on the amount spent under the policy during the previous
calendar year, is available on the Companys website at www.equityapartments.com in the investor section under Corporate Governance.
Biographical Information and Qualifications of Trustees
Our Trustees bring to the Companys Board a wealth of business, real estate and/or
leadership experience derived from their service as senior executives and, in some cases, leaders of complex organizations, and have the collective experience that meets the Companys strategic objectives and contributes to the Boards
effectiveness as a whole. They also all bring public board and committee experience and have an understanding of corporate governance practices and trends. The process undertaken by the Corporate Governance Committee in recommending qualified
trustee candidates is described under Trustee Nomination Procedures below.
Set forth below are biographies of each of our trustees as of
April 1, 2017, which include a discussion of the specific skills and expertise that led to the Boards conclusion that such individual should serve as a Trustee of the Company.
7
Trustees Nominated for
Re-Election
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Samuel Zell
Chairman
Age 75
Trustee since 1993
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Samuel Zell, our founder and the
Companys Chairman since our initial public offering in 1993, is Chairman and Chief Executive Officer of Equity Group Investments, L.L.C., the private entrepreneurial investment firm he founded more than 45 years ago. He is also the founder of
Equity International, a private investment firm focused on real estate-related companies outside the U.S. He also serves as chairman of Anixter International, Inc. (NYSE: AXE), Covanta Holding Corporation (NYSE: CVA), Equity Commonwealth (NYSE: EQC)
and Equity LifeStyle Properties, Inc. (NYSE: ELS). Previously, Mr. Zell served as chairman of Equity Office Properties Trust, which was sold in February 2007 for $39 billion in the largest ever private equity transaction at the time.
Mr. Zell served as the chairman of the Tribune Company, a private media conglomerate, until December 2012, at which time the Tribune Company emerged from Chapter 11 bankruptcy. Mr. Zell is an active philanthropist with a focus on
entrepreneurial education. Through the Zell Family Foundation, he has led the sponsorship of several leading entrepreneurship programs, including: the Zell/Lurie Institute for Entrepreneurial Studies at University of Michigans Ross School of
Business; the Zell Fellows Program at Northwestern Universitys Kellogg School of Management; and the Zell Entrepreneurship Center at the Interdisciplinary Center Herzliya (IDC). The Zell Global Entrepreneur Network (ZGEN) unites the students
and alumni of these programs and actively provides them with connections, opportunities, mentorship and support. Mr. Zell also sponsors the Samuel Zell/Robert Lurie Real Estate Center at University of Pennsylvanias Wharton Real Estate
Center. Mr. Zell received a J.D. from the University of Michigan Law School.
Qualifications
Over 45 years of experience as a chairman, director, and executive of companies in
various industries around the world
Active manager of billions of dollars of global
investments
Recognized as a founder of the modern REIT industry and a leading driver
for increased transparency and disclosure by public companies
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David J. Neithercut
President & CEO
Age 61
Trustee since 2006
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David J. Neithercut has served as
Chief Executive Officer of the Company since January 2006 and President of the Company since May 2005. He was Executive Vice President Corporate Strategy of the Company from January 2004 to May 2005, and Executive Vice President and Chief
Financial Officer of the Company from February 1995 to August 2004. Prior to joining Equity Residential, Mr. Neithercut served as Senior Vice President of Finance for Equity Group Investments, L.L.C. Mr. Neithercut is a director of General
Growth Properties, Inc. (NYSE: GGP). He is a member of the Executive Board of NAREIT of which he served as Chairman in 2015. He also serves on the Policy Advisory Board of the Joint Center for Housing Studies at Harvard University and the MBA Real
Estate Program Advisory Board at Columbia University. Mr. Neithercut received an M.B.A. from the Columbia University Graduate School of Business.
Qualifications
Uniquely qualified as the Chief Executive Officer of the Company
Long and successful track record in various leadership roles at the Company and other
organizations, including leading the development and execution of the Companys portfolio repositioning over the last 10 years
Wealth of expertise in dealing with complex management, financial and business
issues
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John W. Alexander
Age 70
Trustee since 1993
Independent
Committees
Compensation
Governance
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John W. Alexander has been President
of Mallard Creek Capital Partners, Inc., an investment company with interests in real estate, development entities and operating companies, since 1994. He also has been a partner of Meringoff Equities, a real estate investment company, since 1987
and previously served as its Chief Financial Officer and as a managing director. He had earlier careers at Citibank and Toronto-based Cadillac Fairview, which was North Americas largest public real estate company at that time.
Qualifications
Extensive
hands-on
management experience at
various large companies in the real estate industry with similar activities to those of the Company
Important insights gained from many years of board and leadership responsibilities
Great depth of knowledge of the Companys business and strategy
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Charles L. Atwood
Lead Trustee
Age 68
Trustee since 2003
Independent
Committees
Compensation
Governance
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Charles L. Atwood, our Lead Trustee
since March 2009, served as Vice Chairman of the Board of Directors of Harrahs Entertainment, Inc. (now known as Caesars Entertainment Corporation), a private gaming and hospitality company, until his retirement in December 2008.
Mr. Atwood had been Vice Chairman of Harrahs public predecessor company until its sale in January 2008, a member of its Board since 2005, its Chief Financial Officer from 2001 to 2006, and had been with Harrahs and its predecessors
since 1979. During his tenure at Harrahs, Mr. Atwood led that companys merger, acquisition and divestiture activities, new development, and design and construction projects, representing tens of billions of dollars of transactions.
Mr. Atwood serves as a director of Pinnacle Entertainment, Inc. (NYSE: PNK) and is a former director of Gala Coral, a private United Kingdom gaming industry company and ALST Casino Holdco, LLC, a private company in the casino and hospitality
industry. Mr. Atwood received an M.B.A. in finance from Tulane University.
Qualifications
Exceptional expertise in dealing with complex accounting, financial, regulatory and risk
assessment issues, gained as CFO of a large international corporation
Board and
executive leadership experience in a wide range of complicated strategic transactions at multi-faceted companies
Has previously served as an Audit committee financial expert, based on prior experience
as a CFO
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Linda Walker Bynoe
Age 64
Trustee since 2009
Independent
Committees
Governance (Chair)
Audit
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Linda Walker Bynoe has been President
and Chief Executive Officer of Telemat Ltd., a management consulting firm, since 1995 and served as its Chief Operating Officer from 1989 through 1994. Ms. Bynoe served as a Vice President Capital Markets for Morgan Stanley from 1985 to
1989, joining the firm in 1978. Ms. Bynoe serves as a director of Anixter International, Inc. (NYSE: AXE), Northern Trust Corporation (NASDAQ: NTRS) and Prudential Retail Mutual Funds and is a former director of Simon Property Group, Inc.
(NYSE: SPG). Ms. Bynoe received an M.B.A. from Harvard Business School.
Qualifications
Extensive experience as a director of financial services and other complex companies
Diverse consulting and investment experience in various industries
Audit committee financial expert, based on her expertise in accounting and financial
risk management, as well as experience on other public company audit committees
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Connie K. Duckworth
Age 62
Trustee since 2015
Independent
Committees
Audit
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Connie K. Duckworth is the Chairman
and CEO of ARZU, Inc., the social enterprise she founded in 2004 which empowers destitute women weavers in rural Afghanistan. After a distinguished
20-year
career, Ms. Duckworth retired in 2000 as a
Partner and Managing Director of The Goldman Sachs Group, Inc., the first woman to be named a sales and trading partner in the firms history. She is a trustee of the Northwestern Mutual Life Insurance Company, a director of Steelcase Inc.
(NYSE: SCS), and formerly served as a director of Russell Investment Group, Smurfit-Stone Container Corporation, Nuveen Investments and DNP Select Income Fund Inc. Ms. Duckworth received an M.B.A. from the Wharton School of the University of
Pennsylvania.
Qualifications
Extensive experience with over 20 years of executive leadership in the financial
services industry
Successful social entrepreneur with proven operational skills in
rapidly-changing settings
Well-seasoned board member with service on numerous boards
of other public companies and
not-for-profit
entities
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Mary Kay Haben
Age 60
Trustee since 2011
Independent
Committees
Compensation
(Chair)
Governance
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Mary Kay Haben served as the
President-North America for the Wm. Wrigley Jr. Company, a leading confectionary company, until her retirement in February 2011. At Wrigley, Ms. Haben drove growth through new product and packaging innovation, as well as marketing efforts in
emerging social media. Prior to joining Wrigley in 2007, Ms. Haben held various executive positions during her
27-year
career at Kraft Foods Inc. These included leading significant business divisions and
functions for Kraft, driving bottom line growth through marketing innovation and brand positioning efforts, as well as acquisitions and productivity initiatives. She serves as the lead director of Bob Evans Farms, Inc. (NASDAQ: BOBE) and is a
director of The Hershey Company (NYSE: HSY). Ms. Haben received an M.B.A. from the University of Michigan Ross School of Business.
Qualifications
Substantial experience as a brand builder and consumer products business leader
Proven track record in exceeding consumer expectations through innovation and
implementation of business strategies in various markets and media platforms
Valuable marketing perspective as the Company continues to focus on ways to engage with
current and future residents
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Bradley A. Keywell
Age 47
Trustee since 2011
Independent
Committees
Compensation
|
|
Bradley A. Keywell is a
co-founder
and director of Groupon, Inc. (NASDAQ: GRPN); MediaBank LLC, a provider of integrated media procurement technology; and Echo Global Logistics, Inc. (NASDAQ: ECHO). He is also
co-founder
and CEO of Uptake Technologies LLC, a predictive analytics company, and the managing partner of Lightbank, a venture fund, and Meadow Lake Management LLC, an investment and advisory firm.
Mr. Keywell is an Adjunct Professor at the University of Chicago Booth School of Business and received a J.D. from the University of Michigan Law School.
Qualifications
Successful entrepreneur in both public and private markets across wide-ranging
industries, with strong ability to assess risks relating to new ventures and investments
Recognized leader in incorporating technological innovation to implement corporate
strategy, operations and growth
Diverse leadership and management
experience
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11
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John E. Neal
Age 67
Trustee since 2006
Independent
Committees
Audit
(Chair)
|
|
John E. Neal
is a partner of
Linden LLC, a private equity firm. Mr. Neal has over 30 years of experience in executive positions in the financial services and banking industries with a primary focus on real estate finance, including leading the real estate lending and
corporate banking businesses at Bank One Corporation, Kemper Financial Services and Continental Bank. He serves as a trustee of the Calamos Mutual Funds and also serves on the boards of private companies in a wide array of industries. He received an
M.B.A. from Harvard Business School.
Qualifications
Deep executive and management leadership experience in the real estate lending industry,
during various and challenging business cycles
Valuable insight into capital markets
and trends
Audit committee financial expert, based on banking and financial
background
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Mark S. Shapiro
Age 47
Trustee since 2010
Independent
Committees
Compensation
Governance
|
|
Mark S. Shapiro has served as the
Co-President
of WME/IMG, a global leader in sports, fashion and media since September 2016 and Chief Content Officer of WME/IMG since September 2014. He previously held various executive positions, including Chief
Executive Officer, at Dick Clark Productions, an independent producer of television programming, from May 2010 to September 2014. Mr. Shapiro was the Chief Executive Officer and a director of Six Flags, Inc., the worlds largest regional
theme park company, from December 2005 through May 2010. Prior to joining Six Flags, Inc., Mr. Shapiro spent 12 years at ESPN, Inc., where he ultimately served as Executive Vice President, Programming and Production and had significant
responsibility in building the strength of the networks brand which garnered numerous Emmy and Peabody awards. Mr. Shapiro also serves as a director of Live Nation Entertainment, Inc. (NYSE: LYV), Frontier Communications Corporation
(NASDAQ: FTR), and Papa Johns International, Inc. (NASDAQ: PZZA) and is a former director of the Tribune Company.
Qualifications
Business acumen as a CEO and board member of large and complex organizations
Provider of unique and critical insights and innovation in media, marketing and branding
strategies
Insights into organizational transformation to deal with diverse economic
and market-based challenges
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12
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Gerald A. Spector
Vice Chairman
Age 70
Trustee since
1993
Independent
Committees
Audit
|
|
Gerald A. Spector, our Vice Chairman
since January 2008,
was the Executive Vice President of the Company from March 1993 and Chief Operating Officer of the Company from February 1995 until his retirement in December 2007. Mr. Spector was the Chief Operating Officer of the
Tribune Company from December 2009 through December 2010, and served as its Chief Administrative Officer from December 2007 through December 2009. He began his real estate career in the early 1970s and has extensive prior public and private board
experience as well. Mr. Spector serves as a director of Equity Commonwealth (NYSE: EQC) and is a former Certified Public Accountant.
Qualifications
Demonstrated leadership skills at the corporate board and executive levels
Extensive management and financial experience acquired through 40 years of managing and
operating real estate companies through various business cycles
Experienced in
driving operational excellence and development of strategic changes in portfolio focus
Audit committee financial expert, based on his extensive financial and accounting
experience
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Stephen E. Sterrett
Age 61
Trustee since 2015
Independent
Committees
Audit
|
|
Stephen E. Sterrett served as the
Senior Executive Vice President and Chief Financial Officer of Simon Property Group, Inc. (NYSE: SPG), one of the largest REITs in the world by equity market capitalization and a S&P 100 company, until his retirement in December 2014. He spent
more than 26 years in various positions at Simon and its predecessor companies and had served as the Companys Chief Financial Officer since 2000. Prior to joining Simon, Mr. Sterrett was a Senior Manager at the international firm of Price
Waterhouse. Mr. Sterrett serves as a director of Berry Plastics Group, Inc. (NYSE: BERY) and Realty Income Corporation (NYSE: O), and received an M.B.A. from Indiana University.
Qualifications
Extraordinarily equipped with wide-ranging knowledge in real estate and public company
matters
Executive leadership experience and expertise in financial, operational and
strategic issues facing large real estate companies
Audit committee financial
expert, based on prior experience as a CFO
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13
Incumbent Trustee Retiring
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B. Joseph White is retiring effective at the end of his term on June 15, 2017, after serving as a Trustee of the Company since August 1993. As a result,
the Board will be reduced to twelve members. The Board appreciates Mr. Whites many years of dedicated service and valuable contributions as a member of the Board and its various committees.
Mr. White is the President Emeritus of the University of Illinois and The James F.
Towey Professor of Business and Leadership in the College of Business at the Universitys Urbana-Champaign campus. Mr. White served as President of the University of Illinois, a $4.5 billion enterprise with multiple locations and
25,000 employees, from February 2005 to December 2009, and in January 2010 was appointed President Emeritus. Mr. White is the author of two books on corporate leadership and governance.
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B. Joseph White
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Age 69
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Trustee since 1993
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Board Committees
The Board has key standing Audit, Compensation and Corporate Governance Committees, which are comprised entirely of trustees who are independent within the
meaning of the NYSE listing standards. The Board also has an Executive Committee. For the committees on which each of our independent Trustees serve, see Biographical Information and Qualification of Trustees beginning on page 7.
Audit Committee
The Audit Committee is comprised
entirely of trustees who meet the independence and financial literacy requirements of the NYSE listing standards. In addition, the following members of the Audit Committee are designated as financial experts under such listing standards
and SEC rules: John E. Neal (Committee Chair), Linda Walker Bynoe, Gerald A. Spector and Stephen E. Sterrett. The Audit Committees responsibilities as set forth in its charter include providing assistance to the Board in fulfilling its
responsibilities with respect to oversight of the integrity of the Companys financial statements, compliance with legal and regulatory requirements, the independent auditors qualifications, performance and independence and the
performance of the Companys internal audit function. The Companys senior internal audit officer reports to the Audit Committee.
The Audit
Committee has sole authority to appoint and replace the independent auditor, which reports directly to the Committee; approve the engagement fees of the independent auditor; and
pre-approve
the audit services
and any permitted
non-audit
services provided to the Company. In addition, the Audit Committee reviews the scope of audits as well as the annual audit plan, evaluates matters relating to the audit and internal
controls of the Company and reviews and approves all material related party transactions. The Audit Committee holds separate executive sessions, outside the presence of senior management, with the Companys independent auditor and the
Companys senior internal audit officer. During 2016, the Audit Committee held eight meetings and no member of the Audit Committee served on more than two other public company audit committees.
14
Compensation Committee
The Compensation Committee is comprised entirely of trustees who meet the independence requirements of the NYSE listing standards. The Compensation
Committees responsibilities as set forth in its charter include establishing the Companys general compensation philosophy, overseeing the Companys compensation programs and practices, including incentive and equity-based
compensation plans, reviewing and approving executive compensation plans in light of corporate goals and objectives, evaluating the performance of the CEO in light of these criteria and recommending the CEOs compensation level based on such
evaluation. The Compensation Committee is also responsible for evaluating the performance of the other executive officers before approving their compensation and making recommendations concerning proposals by management regarding compensation,
bonuses, employment agreements and other related benefits and policies for Company employees.
The Compensation Committee oversees the Companys
executive succession and management development plans, including diversity and other development programs. During 2016, the Compensation Committee held six meetings.
Corporate Governance Committee
The Corporate
Governance Committee is comprised entirely of trustees who meet the independence requirements of the NYSE listing standards. The Corporate Governance Committees duties as set forth in its charter include establishing criteria for recommending
candidates for election or reelection to the Board and its committees, considering issues and making recommendations concerning the size, composition, organization and effectiveness of the Board, establishing and overseeing procedures for annual
assessment of Board and trustee performance, evaluating issues of corporate governance and shareholder proposals relating to governance matters, and making recommendations to the Board regarding the Companys governance policies and practices,
including its Corporate Governance Guidelines.
The Corporate Governance Committee identifies individuals qualified to become Board members and will also
consider nominees for trustee suggested by shareholders in written submissions to the Companys Corporate Secretary as further described in Trustee Nomination Procedures below. The Corporate Governance Committee is also responsible
for the Boards oversight of enterprise risk management. During 2016, the Corporate Governance Committee held four meetings.
Executive
Committee
The Executive Committee has the authority within certain parameters to approve proposals to acquire, develop, dispose of and finance
investments for the Company. The current members of the Executive Committee are Samuel Zell (Committee Chair), David J. Neithercut, Charles L. Atwood and John E. Neal. Transactions of a nature that exceed the approval parameters of the Executive
Committee typically require approval by the Board.
Meetings
During 2016, the Board held seven meetings, with 97% average attendance. No trustee attended fewer than 94% of the total number of meetings held by the Board
and all committees of the Board on which such trustee served. Eleven trustees attended the 2016 Annual Meeting of Shareholders.
15
Board members are expected to attend all meetings of the Board and committees of which they are members, as
further described in the Companys Corporate Governance Guidelines.
Trustee Nomination Procedures
Trustee Qualifications and Diversity
The
Companys Corporate Governance Guidelines set forth the Boards policies for the desired attributes of trustees and the Board as a whole. The Board will seek to ensure that a substantial majority of its members are independent within the
NYSE listing standards. Each member of the Board must possess the individual qualities of integrity and accountability, informed judgment, financial literacy, high performance standards and must be committed to representing the long-term interests
of the Company and its shareholders. The Board values diversity, in its broadest sense, reflecting, but not limited to, profession, geography, gender, ethnicity, skills and experience, and believes that, as a group, the nominees bring a diverse
range of perspectives to the Boards deliberations. As a general matter, the Board does not believe it should retain a mandatory retirement age for trustees or establish term limits for trustee service, instead preferring to rely upon its
evaluation procedures as the primary method of ensuring that each trustee continues to act in a manner consistent with the best interests of the Company and its shareholders.
Identifying and Evaluating Nominees
The
Corporate Governance Committee regularly assesses the appropriate number of trustees comprising the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. The Corporate Governance Committee considers suggestions
of potential trustee candidates made by current Board members, shareholders, professional search firms or other persons. The Corporate Governance Committee may consider those factors it deems appropriate in evaluating trustee candidates including
judgment, skill, diversity, strength of character, experience with businesses and organizations comparable in size or scope to the Company, experience and skill relative to other Board members and specialized knowledge or experience.
Each of the members of the Corporate Governance Committee (which Committee includes the Lead Trustee) and the Chief Executive Officer, interview potential
candidates that the Corporate Governance Committee has deemed qualified and appropriate. If the Committee determines that a potential candidate meets the needs of the Board, and has the qualifications as set forth in the Companys Corporate
Governance Guidelines, it will recommend the nomination of the candidate to the Board.
Board Refreshment
The Corporate Governance Committee seeks to maintain a board that as a whole possesses the objectivity and the mix of skills and experience to provide
comprehensive and effective oversight of the Companys strategic, operational and compliance risks. The Committee believes that ongoing board refreshment is important to maintain an appropriate mix of skills and provide fresh perspectives while
leveraging the institutional knowledge and historical perspective of the Boards longer-tenured trustees. In keeping with the Committees overall strategy for trustee succession and the appointment of new Board members, since 2010 the
Board has added five new independent trustees and one trustee is retiring in June of this year.
16
Shareholder Nominees
The Corporate Governance Committee will consider properly submitted shareholder nominees for election to the Board and will apply the same evaluation criteria
in considering such nominees as it would to persons nominated under any other circumstance. A shareholder wishing to submit to the Corporate Governance Committee a potential nominee for election to the Board for its consideration should follow the
following procedures:
Pursuant to the Companys Bylaws, a shareholder of the Company who is a shareholder of record at the record date set by the
Board for the purpose of determining shareholders entitled to vote at the annual meeting, at the time of giving notice (as described in this paragraph) and at the time of the annual meeting, and who is entitled to vote at such meeting, may nominate
individuals for election to the Board if the shareholder complies with the following requirements. First, the shareholder must give the Corporate Secretary of the Company timely written notice of nomination. Generally, notice will be timely if it is
delivered not earlier than the 150th day, nor later than the close of business on the 120th day, prior to the first anniversary of the date of the proxy statement for the preceding years annual meeting. Accordingly, for the Companys
annual meeting in the year 2018, the Corporate Secretary must receive the notice after the close of business on November 28, 2017, and prior to the close of business on December 28, 2017. The notice must set forth certain information as to
each individual the shareholder proposes to nominate, information with respect to Company security ownership by the shareholder giving such notice, and, to the extent known by the shareholder giving notice, the name and address of any other
shareholder supporting the nominee for election. The foregoing is a summary of Article II, Section 13 of the Bylaws of the Company and is qualified in its entirety by the text of that section.
The Companys shareholders also possess the right to nominate candidates to the Board through proxy access provisions of the Companys
Bylaws. The Bylaws permit a shareholder, or group of up to 20 shareholders, owning 3% or more of the Companys outstanding common shares continuously for at least 3 years, to include in the Companys annual meeting proxy
materials trustee nominations for up to 20% of the seats on the Board, subject to the other terms and conditions of the Bylaws. The foregoing is a summary of Article II, Section 16 of the Bylaws of the Company and is qualified in its entirety
by the text of that section. Electronic copies of the Bylaws are available on the Companys website at www.equityapartments.com in the investor section under Corporate Governance, and hard copies are available free of charge by
writing to Equity Residential, Two North Riverside Plaza, Suite 400, Chicago, Illinois 60606, Attn: Corporate Secretary or by contacting Investor Relations by phone
(1-888-879-6356)
or
e-mail
(
investorrelations@eqr.com
).
Biographical Information of Executive Officers
Set forth below are biographies of each of our executive officers as of April 1, 2017.
David J. Neithercut
. See Biographical Information and Qualifications of Trustees.
Barry S. Altshuler
,
58, has been Executive Vice President - Investments of the Company since February 2015. Mr. Altshuler served as the
Companys Senior Vice President Investments from January 2007 to January 2015, as Vice President of Acquisitions from April 2002 to December 2006 and as Vice President of Asset Management from January 1998 to March 2002.
Mr. Altshuler serves on the Executive Committee of the Central City Association of Los Angeles and the University of
17
Florida Real Estate Advisory Board and is a member of the Urban Land Institute (ULI). Mr. Altshuler also serves on the Board of Directors of the California Apartment Association.
Alexander Brackenridge
,
53,
has been Executive Vice President Investments of the Company since February 2015.
Mr. Brackenridge served as the Companys Senior Vice President Investments from May 2002 to January 2015 and has held various acquisitions and asset management positions within the Company since 1993. Mr. Brackenridge serves on
the Board of Governors at the Real Estate Board of New York and is a member of the Greater Boston Real Estate Board, the National Multifamily Housing Council (NMHC) and ULI. Mr. Brackenridge received an M.B.A. from Yale University.
Alan W. George
,
59, has been Executive Vice President and Chief Investment Officer of the Company since January 2002 and was Executive Vice
President Acquisitions/Dispositions from February 1997 to January 2002. Mr. George joined the Company in 1992 as a Vice President Asset Management. Mr. George serves on the Executive Committee of NMHC and is also a member of
ULI.
Michael L. Manelis
, 48, has been Executive Vice President Property Operations of the Company since January 2017. Mr. Manelis
served as the Companys Senior Vice President of Operations and Information Technology from May 2012 to December 2016, as Senior Vice President Property Operations from August 2005 to May 2012, as First Vice President Property
Operations from May 2004 to August 2005 and as Vice President of Real Estate Tax from October 1999 to May 2004. Mr. Manelis serves on the Advisory Board of Home Partners of America.
Mark J. Parrell
,
50,
has been Executive Vice President and Chief Financial Officer of the Company since October 2007. Mr. Parrell
was Senior Vice President and Treasurer of the Company from August 2005 to October 2007, and served in various roles in the Companys finance group since September 1999. Mr. Parrell is a member of NMHC and served as its Chair of the
Finance Committee until January 2017 and is a member of ULI. He serves as a director of Brookdale Senior Living Inc. (NYSE: BKD) and served as a director of Aviv REIT, Inc. (NYSE: AVIV) until April 1, 2015, when it merged with a competitor.
Mr. Parrell received a J.D. from Georgetown University Law Center.
David S. Santee
,
58,
has been Executive Vice President and
Chief Operating Officer of the Company since April 2013 and served as the Companys Executive Vice President Operations from January 2007 to April 2013 and as Executive Vice President Eastern Division from November 1996 to
December 2006.
Christa
L. Sorenson
, 56, has been Executive Vice President Human Resources of the Company since
December 2015. Ms. Sorenson was the Senior Vice President Organization and Talent Development from July 2008 to December 2015, and served in various other roles in the Companys Organization and Talent Development group
since March 2003.
Bruce C. Strohm
,
62,
has been Executive Vice President and General Counsel of the Company since March 1995 and
Corporate Secretary of the Company since March 2011. Mr. Strohm received a J.D. from Northwestern University Law School.
18
COMMON SHARE OWNERSHIP OF TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth information, as of February 28, 2017, with respect to the beneficial ownership of the Companys common shares by each
trustee, its named executive officers, and the trustees and all executive officers as a group. Unless otherwise indicated, each person has sole voting and investment power over the common shares listed. On February 28, 2017, a total of
380,367,799 common share equivalents (comprised of common shares, OP Units and restricted units) were outstanding. (1)(2)
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|
|
|
|
|
|
|
Common Share
Equivalents
(1)
|
|
|
Options
Exercisable
in 60
Days
(3)
|
|
|
Percent of
Common
Shares
(1)(2)
|
|
Percent of
Common Share
Equivalents
(1)(2)
|
|
|
|
|
|
Samuel Zell
|
|
|
8,168,879
|
(4)
|
|
|
1,533,730
|
|
|
2.60%
|
|
2.54%
|
|
|
|
|
|
David J. Neithercut
|
|
|
736,983
|
(5)
|
|
|
2,062,291
|
|
|
*
|
|
*
|
|
|
|
|
|
John W. Alexander
|
|
|
71,499
|
(6)
|
|
|
29,548
|
|
|
*
|
|
*
|
|
|
|
|
|
Charles L. Atwood
|
|
|
32,639
|
|
|
|
25,665
|
|
|
*
|
|
*
|
|
|
|
|
|
Linda Walker Bynoe
|
|
|
21,679
|
|
|
|
29,752
|
|
|
*
|
|
*
|
|
|
|
|
|
Connie K. Duckworth
|
|
|
2,781
|
|
|
|
0
|
|
|
*
|
|
*
|
|
|
|
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|
Mary Kay Haben
|
|
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11,991
|
|
|
|
18,370
|
|
|
*
|
|
*
|
|
|
|
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|
Bradley A. Keywell
|
|
|
18,561
|
|
|
|
20,038
|
|
|
*
|
|
*
|
|
|
|
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|
John E. Neal
|
|
|
26,755
|
|
|
|
0
|
|
|
*
|
|
*
|
|
|
|
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|
Mark S. Shapiro
|
|
|
12,585
|
|
|
|
28,959
|
|
|
*
|
|
*
|
|
|
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Gerald A. Spector
|
|
|
396,276
|
(7)
|
|
|
42,462
|
|
|
*
|
|
*
|
|
|
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|
Stephen E. Sterrett
|
|
|
9,061
|
|
|
|
2,101
|
|
|
*
|
|
*
|
|
|
|
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|
B. Joseph White
|
|
|
33,775
|
|
|
|
23,259
|
|
|
*
|
|
*
|
|
|
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|
Alan W. George
|
|
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247,739
|
|
|
|
207,784
|
|
|
*
|
|
*
|
|
|
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Mark J. Parrell
|
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90,501
|
|
|
|
87,294
|
|
|
*
|
|
*
|
|
|
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David S. Santee
|
|
|
126,243
|
|
|
|
14,028
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|
|
*
|
|
*
|
|
|
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|
Bruce C. Strohm
|
|
|
142,847
|
|
|
|
124,041
|
|
|
*
|
|
*
|
|
|
|
|
|
Trustees and Executive
Officers as a Group
|
|
|
10,247,733
|
|
|
|
4,337,967
|
|
|
3.88%
|
|
3.79%
|
(1)
|
Excludes the LTI Awards granted in February 2015, January 2016 and January 2017 under the Companys Long-Term Incentive Plans which remain subject to earn out at the end of their respective three-year performance
periods, as further described in the Compensation Discussion and Analysis section below.
|
(2)
|
The total number of common shares and OP Units pledged as security for loans by our trustees and executive officers as of February 28, 2017 is 1.3% of the Companys total outstanding number of common share
equivalents.
|
(3)
|
The quantities of options shown reflect equitable adjustments required by the Companys 2011 Share Incentive Plan as a result of the special cash dividends paid by the Company in 2016. Exercise prices for each
option were also equitably adjusted for the same reason.
|
(4)
|
Of the total amount shown, 1,365,768 shares and 3,388,316 OP Units are beneficially owned by various family trusts and entities over which Mr. Zell does not have voting or dispositive power and disclaims beneficial
ownership thereof. 4,843,857 of the common shares and OP Units shown were pledged as security for various loans.
|
19
(5)
|
Of the total amount shown, 63,896 OP Units are beneficially owned by trusts for the benefit of Mr. Neithercuts children over which Mr. Neithercut has no voting or dispositive power and disclaims
beneficial ownership thereof. 26,600 of the common shares shown were pledged for a line of credit.
|
(6)
|
62,807 of the common shares shown were pledged for a line of credit of which no amounts were outstanding as of February 28, 2017.
|
(7)
|
Of the total amount shown, Mr. Spector has no voting or dispositive power over and disclaims beneficial ownership of: (i) 57,187 common shares beneficially owned by Mr. Spectors spouse, and (ii) 27,500
common shares beneficially owned by a trust for the benefit of Mr. Spectors family.
|
COMMON SHARE OWNERSHIP OF PRINCIPAL SHAREHOLDERS
This table sets forth information with respect to persons who are known to beneficially own more than 5% of the Companys outstanding common shares as of
December 31, 2016.
|
|
|
|
|
Name and Address of Owner
|
|
Common Shares
|
|
Percent of Common Shares
|
|
|
|
The Vanguard Group (1)
100 Vanguard Blvd.
Malvern, PA 19355
|
|
51,208,333
|
|
14.0%
|
|
|
|
BlackRock, Inc. (2)
55 East 52nd Street
New York, NY 10055
|
|
33,024,676
|
|
9.0%
|
|
|
|
State Street Corporation (3)
State Street Financial Center
One Lincoln Street
Boston, MA 02111
|
|
21,392,381
|
|
5.8%
|
(1)
|
The Schedule 13G/A filed by The Vanguard Group, Inc. (Vanguard), an investment adviser, on behalf of itself and its subsidiaries on February 9, 2017, states that as of December 31, 2016, it has
sole power to vote 1,034,355 shares, shared power to vote 467,194 shares, sole power to dispose of 50,173,828 shares and shared power to dispose of 1,034,505 shares. The Schedule 13G/A filed by Vanguard Specialized Funds - Vanguard REIT Index Fund
(the Vanguard Funds) on February 13, 2017, states that as of December 31, 2016, it has sole power to vote 27,736,154 shares. Vanguard has previously confirmed that the 27,736,154 shares reported as beneficially owned by the
Vanguard Funds as of December 31, 2016 in its Schedule 13G/A are included in the 51,208,333 shares reported as beneficially owned by Vanguard in its Schedule 13G/A. The Schedule 13G/A filed by Vanguard also states that Vanguard Fiduciary Trust
Company, a wholly-owned subsidiary of Vanguard, is the beneficial owner of 470,809 shares as a result of its serving as investment manager of collective trust accounts, and Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of Vanguard,
is the beneficial owner of 1,127,242 shares as a result of its serving as investment manager of Australian investment offerings.
|
(2)
|
The Schedule 13G/A filed by BlackRock, Inc. on behalf of itself and its subsidiaries on January 24, 2017, states that as of December 31, 2016, it has sole power to vote 29,644,225 shares and sole power to
dispose of 33,024,676 shares.
|
(3)
|
The Schedule 13G filed by State Street Corporation on behalf of itself and its subsidiaries on February 8, 2017, states that as of December 31, 2016, it has shared power to vote and shared power to dispose of
21,392,381 shares.
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20
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (CD&A) provides a detailed description of our executive compensation philosophy, objectives and
programs, the compensation decisions made under those programs, and the performance metrics and other relevant factors the Compensation Committee used in making those decisions.
At our 2016 Annual Meeting of Shareholders, 91% of our shareholders who voted approved our advisory report on the Companys executive compensation. We
believe our shareholders overwhelming support for the Companys compensation program in 2016 reflects the strong alignment between our executive pay and performance.
The Companys executive compensation programs, which apply to Mr. Neithercut and his direct reports, are based on a strong performance-oriented
compensation philosophy and are designed to attract, retain and motivate talented executives, and to align executive and shareholder interests. Highlighted below are the key features of our executive compensation programs. We also identify certain
compensation practices we have not implemented because they do not serve our shareholders long-term interests.
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What
We Do
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✓
Do
engage an independent compensation consultant to advise the
Compensation Committee, which is comprised solely of independent trustees
✓
Do
have a strong pay for performance compensation philosophy with
salaries comprising a modest portion of each executives total compensation opportunity
✓
Do
require our Annual Incentive Plan Awards to be subject to
objective performance metrics that align with the Companys business strategy and the long-term interests of our shareholders
✓
Do
enhance executive officer retention with time-based,
multi-year vesting schedules for equity incentive awards granted for prior-year performance
✓
Do
align the long-term interests of our executive officers with
those of our shareholders by awarding a significant percentage of compensation in the form of Long-Term Incentive Plan Awards, which are subject to quantitative performance metrics with three year forward-looking performance periods
✓
Do
have strong share ownership guidelines for our executive officers and trustees
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What We
Dont Do
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X
No
employment agreements with any of our executive officers
X
No
compensation incentives that encourage excessive risk taking
X
No
repricing of share options allowed
X
No
hedging of Company shares allowed
X
No
excise tax
gross-ups
in any
new change in control agreements
X
No
excessive perks to our executive
officers
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21
Company Highlights
In 2016, we continued our long and successful track record of investor-centric capital allocation, culminating in the completion of the Companys
multi-year transformation into a portfolio focused on urban and highly walkable
close-in
suburban assets. In doing so, we:
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Capitalized on extraordinary demand for multifamily assets by selling nearly 30,000 apartment units for an aggregate sale price of $6.8 billion, generating an Unlevered IRR of 11.8% and a $4.0 billion net gain
on sale. (1)
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Completed our exit from the Denver, South Florida and New England (excluding Boston) markets which we believe have lower long-term growth prospects.
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Paid our shareholders approximately $4.0 billion in special dividends (or $11 per share) as a result of our sale activity and repaid approximately $2 billion in debt to make these sales leverage neutral. In
addition to such special dividends, we paid over $2 per share in regular dividends.
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Were named Global/Residential Listed Sector Leader by GRESB and received the Residential Leader in the Light award from NAREIT, in recognition of our industry-leading efforts in sustainability and social responsibility.
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Generated same store year-over-year net operating income growth in line with long-term historical trends, representing a 3.9% increase over 2015. (1)
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Produced earnings per share of $11.68 (or net income of nearly $4.5 billion), primarily as a result of the sale activity described above, FFO of $2.94 per share (or more than $1.1 billion) and Normalized FFO of $3.09
per share (or nearly $1.2 billion). (1)
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Stabilized six new development properties in core locations with a total development cost of $894 million and a weighted average projected yield of 6.0%, results that were superior to our original expectations.
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Issued $500 million in
10-year
unsecured debt with a 2.85% coupon, the lowest rate in our history. We also closed on a new
5-year
$2.0 billion unsecured revolving line of credit, with a lower cost than the line of credit it replaced.
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Were named one of The Worlds Most Admired Companies by Fortune Magazine.
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Mr. Neithercut and Mr. Parrell were ranked as one of the top three best CEOs and CFOs, respectively, in the REIT industry by Institutional Investor Magazine, which also ranked our Investor Relations program as
one of the top two best programs.
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(1)
|
For additional details/definitions of Unlevered IRR, Same Store Net Operating Income and Normalized FFO, including reconciliations of earnings per share EPS to FFO and Normalized FFO, see the Supplemental
Appendix on page 58.
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2016 EXECUTIVE COMPENSATION PROGRAM
Components of 2016 Executive Compensation Program
Annual Salary
Annual salaries of executive
officers, the first component of the 2016 Executive Compensation Program, were set at levels competitive with other large companies engaged in the real estate industry with which the Company competes for executive talent. As it does annually, the
Compensation Committee reviewed base salaries for the executive officers to determine whether any adjustments were necessary to reflect market conditions or changes in responsibilities. There
22
has been no increase in the base salaries for the CEO and other named executive officers in the past three years.
Annual Incentive Plan
The second component of
the 2016 Executive Compensation Program was an Annual Incentive Plan, which allowed the executive to earn from 0% to 200% of target annual incentive, by performance against
pre-defined
and
pre-weighted
annual goals (75% of which are objective measureable metrics for Mr. Neithercut and 60% of which are objective measureable metrics for the other named executive officers) established by the
Compensation Committee. The Goals were comprised of Corporate Goals, which were shared by all executives, and Business Unit goals for all executives other than Mr. Neithercut, which were unique to each executive. These goals were
pre-established,
with the majority measured objectively and the rest subjectively. Each executive was also assigned individual goals for 2016; Mr. Neithercut by the Compensation Committee and the other
executives by Mr. Neithercut and approved by the Compensation Committee. Individual goals were assessed subjectively and were intended to move the Company and/or business unit forward in terms of organizational structure, improve on such
practices as collaboration among business units and enterprise-wide thinking, provide for appropriate leadership and succession management or otherwise address developmental needs of individuals or groups within the organization.
The Annual Incentive Plan rewarded achievement of these goals based on the Compensation Committees quantitative and qualitative assessment of the
executives contributions to that performance. Performance against each goal was assessed against Threshold, Target and Maximum performance levels, equating to payouts at 50%, 100% and 200%, respectively, and each goal was assigned a weighting
relative to the other annual goals. Results between Threshold and Target or between Target and Maximum were based on interpolation. Performance below Threshold would have earned 0%, and performance that exceeded the Maximum would be capped at the
Maximum level. The total annual incentive earned by an executive was the sum of the weighted annual incentive amounts earned with respect to each goal.
To further encourage executive officer retention and align the interests of our executives with our shareholders,
one-half
of the annual incentive earned was paid in Performance Equity Grants comprised of Share Awards and/or options to purchase Company shares (Option Awards). Share Awards cliff
vest, in full, on the three-year anniversary of the grant date, and Option Awards vest over three years at the rate of
one-third
of such award each year, all subject to continuous employment and other normal
retirement provisions.
The other half of the annual incentive earned was paid in cash (the Performance Bonus) and/or, at the executives
option, in the form of immediately vested restricted units or Option Awards.
Long-Term Incentive Plan
The third component of the 2016 Executive Compensation Program was the Long-Term Incentive Plan (LTI Plan), which allows the executive to earn
from 0% to 200% of a target number of Share Awards, as determined by the Companys relative and absolute Total Shareholder Return (TSR) over a forward-looking three-year performance period compared to
pre-established
quantitative performance metrics. This aligns the interests of our executives with the interests of our shareholders. We refer to such awards subject to earn out under the LTI Plan as LTI
Awards. LTI Awards that are earned by TSR results, as described above, cliff vest, in full, on the three-year
23
anniversary of the grant date, subject to continuous employment and other normal retirement provisions. The LTI Awards were granted to executives in January 2016, at the target dollar amounts
shown on page 25, covering the three-year performance period from January 1, 2016 through December 31, 2018, with the following
pre-established
quantitative performance metrics and potential payout
levels:
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Performance Level (1)
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% of Award
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|
Metric
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
50%
|
|
Percentile ranking of Company relative to companies in the FTSE NAREIT Equity Apartments Index
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25%
|
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50%
|
|
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80%
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|
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|
|
25%
|
|
Percentile ranking of Company relative to companies in the FTSE NAREIT Equity REIT Index
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25%
|
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50%
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80%
|
|
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|
25%
|
|
Absolute Company TSR (2)
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4%
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|
8%
|
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|
12%
|
(1)
|
Performance results with respect to each metric at Threshold, Target and Maximum equate to payouts of 50%, 100% and 200%, respectively. Results between Threshold and Target or between Target and Maximum are based on
interpolation. Performance below Threshold earns 0% and above Maximum is capped at the Maximum level.
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(2)
|
Absolute Company TSR represents the compounded annual return of an investment in common shares of the Company over the performance period, with the beginning and ending share prices being the average of the first and
last 20 trading days, respectively, of the performance period.
|
The Compensation Committee, as promptly as practicable following the
conclusion of the performance period, shall determine the resulting earn out, if any, of LTI Awards compared against the performance metrics established for the period. If a Change in Control (as defined in the Change in Control/Severance
Agreements section below) occurs at any time prior to the end of the performance period, the award shall be valued as though the performance period had ended on the date of the Change in Control.
Executives participating in the LTI Plan elect prior to the start of the performance period to settle the LTI Award at the end of the performance period in
the form of either or a combination of both restricted shares and/or restricted units. With respect to an award that will be settled in the form of restricted shares, the Company shall not pay the grantee any dividends on such shares during the
performance period. Once the number of restricted shares earned, if any, has been determined after the end of the performance period, the Company shall make a cash payment to the grantee in an amount equal to all cash dividends that would have been
paid on those earned restricted shares had they been outstanding and entitled to dividends during the performance period.
For income tax reasons,
grantees of awards that will be settled in the form of restricted units: (i) will be issued restricted units at the time of grant at the maximum amount but such units will be subject to forfeiture (other than the partial distributions paid
thereon, which are not subject to forfeiture) at the end of the performance period depending on the extent of the actual award earned and (ii) will be paid a distribution in the amount of 10 percent of any cash distributions paid on OP
Units during the performance period. Once the number of restricted units earned, if any, has been determined and
trued-up
at the end of the performance period, the Companys operating partnership shall
make a cash payment to the grantee in the amount equal to all cash dividends that would have been paid on those earned restricted units had they been outstanding and entitled to dividends during the performance period, less any previously paid
partial dividends.
24
2016 Target Compensation/Pay Mix
The following table shows the three components of our executive officers 2016 target compensation as described in the preceding pages:
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Annual Incentive
Plan
|
|
LTI Plan
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|
|
|
|
Annual
Salary
|
|
Performance
Bonus
(1)
|
|
Performance
Equity Grants
(1)
(2)
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|
LTI
Awards
(1)(3)
|
|
Total Target
Compensation
|
D. Neithercut
|
|
$900,000
|
|
$1,800,000
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|
$1,800,000
|
|
$3,600,000
|
|
$8,100,000
|
D. Santee
|
|
600,000
|
|
600,000
|
|
600,000
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|
1,200,000
|
|
3,000,000
|
A. George
|
|
600,000
|
|
600,000
|
|
600,000
|
|
1,200,000
|
|
3,000,000
|
M. Parrell
|
|
600,000
|
|
600,000
|
|
600,000
|
|
1,200,000
|
|
3,000,000
|
B.
Strohm
|
|
500,000
|
|
500,000
|
|
500,000
|
|
1,000,000
|
|
2,500,000
|
(1)
|
Amounts shown reflect a hypothetical 100% payout resulting from achieving target performance. Actual payouts will be in a range of 0% to 200% of these amounts, as determined by actual performance results.
|
(2)
|
Performance Equity Grants are performance based annual incentive grants consisting of Share Awards and/or Option Awards.
|
(3)
|
LTI Awards covering the three-year performance period from January 1, 2016 to December 31, 2018, subject to earn out at the end of the three-year period.
|
The Compensation Committee believes that as the responsibilities of our executives increase, the proportion of their total compensation that is at risk and
dependent on the Companys objective performance should also increase. Accordingly, a significant portion of our executive officers total target compensation was determined on the basis of performance with respect to
pre-established
quantitative performance metrics: 89% for Mr. Neithercut and 80% for the other executives. Furthermore, 45% of Mr. Neithercuts target compensation and 40% of the other
executives target compensation was comprised of LTI Awards and dependent on the Companys relative and absolute TSR over a forward-looking three-year performance period.
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CEO
2016 TARGET COMPENSATION MIX
|
|
OTHER EXECUTIVES
2016 TARGET COMPENSATION MIX
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25
EVALUATION OF 2016 PERFORMANCE
In order to provide shareholders with a more complete picture of executive officer compensation earned in any year, the following tables present the total
compensation paid to our CEO and other named executive officers for their service in the listed years. As more fully described below, the 2016 total compensation for Mr. Neithercut and each of the other named executive officers was
substantially below 2016 target compensation and 2015 actual compensation, primarily because of less than Target performance on the 2016 Corporate Goals.
Unlike the Summary Compensation Table (SC Table) on page 35 which reports the value of the Share Awards and Option Awards in the year in which
they were granted, the tables below show the aggregate value of awards under the Annual Incentive Plan (Share Awards, Option Awards and Performance Bonus) for the year in which they were earned. For this reason, the Compensation Committee believes
the amounts shown as Total Compensation in the tables below are the best measurement of the annual direct compensation earned by the executive officers.
Mr. Neithercut, President & Chief Executive Officer
As shown below, Mr. Neithercuts 2016 total earned compensation (valuing his LTI Award at target) was approximately 90% of his 2016 Target
compensation. In addition, Mr. Neithercuts 2016 total earned compensation was approximately 73% of his 2015 total earned compensation and 87% of his 2014 total earned compensation.
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Year
|
|
Annual
Salary
|
|
Annual
Incentive
Plan
(1)
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Target
LTI
Plan
(2)
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Total
Earned
Compensation
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Target
Compensation
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|
SC Table
Total
Compensation
(3)
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2016
|
|
$900,000
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|
$2,784,590
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|
$3,599,964
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$7,284,554
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$8,100,000
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$8,673,704
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2015
|
|
900,000
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|
5,540,558
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|
3,599,988
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|
10,040,546
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8,100,000
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|
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12,738,532 (4)
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2014
|
|
900,000
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|
7,441,751
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8,341,751
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6,806,250
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|
8,139,683
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(1)
|
Represents compensation earned for the year in which services were performed, even though paid in February of the following year.
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(2)
|
Represents the target grant date fair value of LTI Awards which remain subject to earn out at the end of the three-year performance period from January 1, 2016 to December 31, 2018 for the 2016 grant and from
January 1, 2015 to December 31, 2017 for the 2015 grant. The actual amounts paid out at the end of the respective three-year performance periods may range from 0% to 200% of the target number of such awards. As of December 31, 2016,
the 2016 and 2015 LTI Awards were valued at 0% and approximately 19%, respectively, of the target grants.
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(3)
|
As reflected in the SC Table on page 35.
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(4)
|
Per SEC rules, total compensation in the SC Table includes the value of all equity awards granted in a calendar year, whether or not earned for performance in that listed year. Accordingly, the amount for 2015 is
substantially higher than the amount shown in the Total Earned Compensation column above because it represents the doubling of equity awards granted in 2015 resulting from the overlap of the Companys current and former executive
compensation programs.
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Other Named Executive Officers
For each of the executive officers shown below, their 2016 total earned compensation (valuing their respective LTI Awards at target) was approximately 95% of
their respective 2016 Target compensation and, on average, approximately 80% of their respective 2015 total earned compensation.
26
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Annual
Salary
|
|
Annual
Incentive
Plan
(1)
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|
Target
LTI
Plan
(2)
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Total
Earned
Compensation
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|
Target
Compensation
|
|
SC Table
2016
Compensation
(3)
|
D. Santee
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|
$600,000
|
|
$1,043,973
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|
$1,199,929
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|
$2,843,902
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|
$3,000,000
|
|
$3,186,620
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A. George
|
|
600,000
|
|
1,043,997
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|
1,199,929
|
|
2,843,926
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|
3,000,000
|
|
3,240,371
|
M. Parrell
|
|
600,000
|
|
1,043,997
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|
1,199,929
|
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2,843,926
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|
3,000,000
|
|
3,186,620
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B.
Strohm
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|
500,000
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|
869,999
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|
999,999
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|
2,369,998
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|
2,500,000
|
|
2,660,069
|
(1)
|
Represents compensation paid for service in 2016, even though paid in February 2017.
|
(2)
|
Represents the target grant date fair value of LTI Awards granted in January 2016, which remain subject to earn out at the end of the three-year performance period from January 1, 2016 to December 31, 2018.
The actual amounts paid out at the end of the three-year performance period may range from 0% to 200% of the target number of such awards. As of December 31, 2016, the LTI Awards were valued at 0% of the target grant.
|
(3)
|
As reflected in the SC Table on page 35.
|
2016 Annual Incentive Plan
For 2016, the Compensation Committee established the following Annual Incentive Plan Performance Goals, with the following relative weightings for 2016:
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CEO PERFORMANCE GOALS
|
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OTHER EXECUTIVES PERFORMANCE GOALS
|
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|
|
2016 Annual Incentive Plan Goals
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CEO
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Other Executives
|
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Corporate Goals
|
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|
Annual
Growth in Same Store Net Operating Income
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35%
|
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30%
|
|
Normalized
Funds from Operations per Share
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15%
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|
10%
|
|
Leadership/Employee Engagement
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15%
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|
10%
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|
Normalized
G&A and Property Management Costs
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|
|
10%
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|
|
10%
|
|
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|
Business Unit Goals
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0%
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|
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30%
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|
Individual Goals
|
|
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25%
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|
|
|
10%
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Total:
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|
|
100%
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|
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|
100%
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27
2016 Corporate Goal Results
|
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Corporate Goal #1: Annual Growth in Same Store Net Operating Income
|
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Threshold 50%
|
|
Target 100%
|
|
Maximum 200%
|
|
2016 Results
|
|
% of Target Achieved
|
|
|
5.0%
|
|
5.8%
|
|
7.0%
|
|
3.9%
|
|
0%
|
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|
Target:
The 2016 Target for Corporate Goal #1 was for the Company to achieve 2016-over-2015 Same Store Net Operating Income (NOI)
growth of 5.8%.
Performance:
Actual year-over-year Same Store NOI
Growth in 2016 was 3.9%, resulting in no payout for this goal. While 3.9% year-over-year Same Store NOI growth (approximately $58 million in improved cash flow) was a strong result compared to long-term trends, it fell short of the
Companys Target goal. This goals Target did not fully anticipate the impact of new luxury supply and slower growth in higher paying technology and financial services jobs in San Francisco and New York, markets that made up a significant
portion of our original projection of Same Store NOI growth. Payroll expense in these markets was also higher than expected as new properties coming
on-line
created a higher level of demand for property
personnel.
Why is this metric important?
The Companys
primary financial measure for evaluating the operating performance of its apartment properties is NOI, which represents rental income less direct property operating expenses (including real estate taxes and insurance). The Company believes that NOI
is helpful to investors as a supplemental measure of its operating performance because it is a direct measure of the actual operating results of the Companys apartment properties. Comparing NOI on a same store basis (i.e., looking
at the exact same set of stabilized apartment properties over the periods being compared) allows for an apples to apples comparison and helps investors compare the Companys operating results to its competitors.
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Corporate Goal #2: Normalized Funds from Operations per Share
|
|
|
|
|
|
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|
|
Threshold 50%
|
|
Target 100%
|
|
Maximum 200%
|
|
2016 Results
|
|
% of Target Achieved
|
|
|
$3.05
|
|
$3.13
|
|
$3.23
|
|
$3.09
|
|
75%
|
|
|
Target:
The 2016 Target for Corporate Goal #2 was for the Company to achieve Normalized Funds from Operations (FFO) of $3.13 per
share.
Performance:
Actual Normalized FFO for 2016 was $3.09 per share,
resulting in an achievement of 75% of Target. This goals Target of $3.13 assumed higher Normalized FFO growth than was achieved primarily due to the negative impact of new luxury supply and slowing growth in higher paying technology and
financial services jobs in San Francisco and New York, markets that made up a significant portion of the projected growth. This negative impact was partially offset by the net positive impact of lower than expected transaction activity.
Why is this metric important?
FFO is widely acknowledged by the
REIT industry as being a helpful measure of the operating performance of a real estate company, because it excludes depreciation and gains or losses relating to sales of depreciated real estate. The Company uses Normalized FFO, which
further excludes other items that by their nature are not comparable from period to period and tend to obscure actual operating results, as a method to compare the operating performance of the Company over a given time period to that of other
companies and other time periods in a consistent manner.
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28
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|
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|
Corporate Goal #3: Leadership/Employee Engagement
|
|
|
|
|
|
|
Threshold 50%
|
|
Target 100%
|
|
Maximum 200%
|
|
2016 Results
|
|
Weighted % of
Target Achieved
|
|
|
Engagement (60%):
|
|
79%
|
|
83%
|
|
87%
|
|
80%
|
|
|
|
|
Retention (40%):
|
|
70%
|
|
75%
|
|
80%
|
|
76%
|
|
82%
|
|
|
Target:
The 2016 Target for Corporate Goal #3 was for the Company to achieve an engagement score of 83% and a retention percentage of 75%.
Performance:
Actual scoring in 2016 was an 80% engagement score and 76%
retention percentage, resulting in an achievement of 82% of Target. While the engagement score of 80% was less than Target, it is considered a high engagement score when compared to industry data and resulted in the Company receiving The Employee
Voice Award from the survey provider, which recognized our excellence in employee engagement.
Why is this metric important?
It is a core managerial principle that one of the strongest competitive advantages a company
can have is an engaged and committed workforce. One way the Company measures the effectiveness of its executives leadership, is by assessing objective data relating to:
Employee Engagement
, through an annual third-party anonymous survey of our
workforce, and
Employee Retention
, by calculating the percentage of the
workforce that has been retained in the relevant period of time, excluding the effects of property acquisitions/sales and other
non-comparable
events.
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Goal #4: Normalized G&A and Property Management Costs
|
|
|
|
|
|
|
|
|
Threshold 50%
|
|
Target 100%
|
|
Maximum 200%
|
|
2016 Results
|
|
% of Target Achieved
|
|
|
$143.0M
|
|
$141.0M
|
|
$137.0M
|
|
$138.5M
|
|
163%
|
|
|
Target:
The 2016 Target for Corporate Goal #4 was for the Company to limit its normalized general and administrative (G&A) and
property management costs to $141.0 million.
Performance:
Focused
overhead management following the Companys 2016 disposition activity led to actual G&A and property management costs for 2016 of $138.5 million, resulting in an achievement of 163% of Target.
Why is this metric important?
The Company believes that looking
at general and administrative and property management costs is a helpful measurement to investors as one method of analyzing the Companys stewardship of its capital. This metric, which the Company normalizes to exclude certain non-recurring or
duplicative charges (such as costs relating to accounting rule changes and other similar significant non-comparable or duplicative events), includes the personnel and other overhead costs incurred by the Company to manage its operations,
investments, finance and legal activities above the property level. The Company monitors this metric carefully as it is a measure of efficiency in managing its business. In 2016, the Company spent approximately 5.7% of total revenues on its G&A
and property management costs, compared to an average of 6.6% for our largest public multifamily competitors (1).
(1) Apartment Investment and Management Company, AvalonBay Communities, Inc., Camden Property Trust, Essex Property Trust, Inc., Mid-America Apartment
Communities, Inc. and UDR, Inc.
|
29
Compensation for the Chief Executive Officer in 2016
To determine the amounts of Mr. Neithercuts 2016 Performance Bonus and Performance Equity Grant, the Compensation Committee calculated results on
the Corporate Goals, as delineated above, and assigned a score to his individual goals. The independent trustees of the Board then approved such calculations, scores and overall compensation.
Mr. Neithercuts individual goals for 2016, which were assigned by the Compensation Committee, included strategic initiatives, industry leadership
and reputation, investor perception and understanding, leadership development and succession planning, communication and collaboration; and oversight of Company shared corporate goals.
In reviewing Mr. Neithercuts performance on his individual goals, the Compensation Committee noted that he was primarily responsible for the
strategic initiative of completing the Companys multi-year transformation into a portfolio of urban and highly walkable
close-in
suburban assets, highlighted by the sale of nearly 30,000 apartment units
for $6.8 billion, generating a $4.0 billion net gain on sale and an Unlevered IRR of 11.8% and payment to our shareholders of approximately $4.0 billion in special dividends, or $11 per share, the highest in the Companys
history. The Compensation Committee also noted that Mr. Neithercut was named one of the top three best CEOs in the REIT sector by
buy-side
analysts in Institutional Investor Magazine, and the Company was
once again named one of the Worlds Most Admired Companies by Fortune Magazine.
For 2016, Mr. Neithercut received a score of 150% of Target on
his individual goals and a score of 53% of Target on the Corporate Goals, resulting in an overall achievement of 77% of Target on his Performance Bonus and his Performance Equity Grant. As a result and as noted above, Mr. Neithercuts 2016
total compensation (valuing his LTI Award at target) was approximately 90% of his 2016 Target compensation and approximately 73% of his actual 2015 earned total compensation.
Compensation for the Other Named Executives in 2016
To determine the amounts of the Performance Bonus and Performance Equity Grant for the other named executive officers, the Compensation Committee calculated
results on the Corporate Goals, and Mr. Neithercut, in consultation with the Compensation Committee, assessed each executives performance on his Business Unit Goals and individual goals for the year and then assigned scores to such goals.
David S. Santee
. As Executive Vice President and Chief Operating Officer, Mr. Santees Business Unit Goals included IT initiatives,
performance of completed development projects and recent acquisitions, achievement of customer loyalty metrics, as well as the appropriate oversight of all property operations (including property management, facilities services, real estate tax,
pricing and product procurement for the Companys entire portfolio of property assets), marketing and branding, sales and revenue strategy. His goals also included sustainability and enterprise risk management initiatives. Mr. Santee
successfully led the Companys property operations teams, which were responsible for the Companys recognition of over $2.4 billion in total revenues, a 3.9% growth in NOI year-over-year, a material increase in the Companys
Customer Loyalty scores from the prior year and was a key player in the Companys significant disposition activities.
30
For 2016, Mr. Santee received a score of 150% of Target on his Business Unit Goals, a score of 100% of
Target on his individual goals and a score of 53% of Target on the Corporate Goals, resulting in an overall achievement of 87% of Target on his Performance Bonus and his Performance Equity Grant. Mr. Santees 2016 total compensation
(valuing his LTI Award at target) was approximately 95% of his 2016 Target compensation and approximately 81% of his actual 2015 earned total compensation.
Alan W. George
. As Executive Vice President and Chief Investment Officer, Mr. Georges Business Unit Goals included the appropriate oversight
of acquisitions and dispositions, development, portfolio management, construction services and rehab activities. His goals also included sustainability and enterprise risk management initiatives. Mr. George was primarily responsible for
the Companys sale of $6.8 billion of assets at prices above the range of expectations (resulting in a $4.0 billion net gain on sale and an Unlevered IRR of 11.8%), the stabilization of six new development properties in core locations
with a total development cost of $894.2 million and a weighted average projected yield of 6.0%, results from these development projects that exceeded original expectations, and the Companys industry leading efforts in sustainability.
For 2016, Mr. George received a score of 150% of Target on his Business Unit Goals, a score of 100% of Target on his individual goals and a score of 53%
of Target on the Corporate Goals, resulting in an overall achievement of 87% of Target on his Performance Bonus and his Performance Equity Grant. Mr. Georges 2016 total compensation (valuing his LTI Award at target) was approximately 95%
of his 2016 Target compensation and approximately 79% of his actual 2015 earned total compensation.
Mark J. Parrell
. As Executive Vice President
and Chief Financial Officer, Mr. Parrells Business Unit Goals included appropriately managing the Companys accounting and corporate budgeting functions, which include liquidity, capital planning, overseeing the preparation of the
Companys financial statements, SEC periodic filings and financial planning and budgeting. He is also responsible for the oversight of the Companys treasury department, which is responsible for capital market execution, and also oversees
the income tax and investor relations departments. His goals also included sustainability and enterprise risk management initiatives. The Committee and Mr. Neithercut also noted that Mr. Parrell was named one of the top three best
CFOs in the REIT sector in Institutional Investor Magazine and was nominated for Chicago CFO of the Year by the Chicago Chapter of Financial Executives International. Mr. Parrell was a key player in the Companys significant disposition
activities during 2016 and was responsible for all of the Companys capital markets activities, including a successful issuance of $500 million in
10-year
unsecured debt with a 2.85% coupon, the
lowest rate in the Companys history and the replacement of the Companys unsecured revolving line of credit with a new five-year unsecured facility with market-leading terms driven by very strong interest from banks. He also oversaw the
Companys investor relations program which was recognized by Institutional Investor Magazine as being one of the two best programs in the REIT sector.
For 2016, Mr. Parrell received a score of 150% of Target on his Business Unit Goals, a score of 100% of Target on his individual goals and a score of 53%
of Target on the Corporate Goals, resulting in an overall achievement of 87% of Target on his Performance Bonus and his Performance Equity Grant. Mr. Parrells 2016 total compensation (valuing his LTI Award at target) was approximately 95%
of his 2016 Target compensation and approximately 81% of his actual 2015 earned total compensation.
31
Bruce C. Strohm.
As Executive Vice President, General Counsel and Corporate Secretary,
Mr. Strohms Business Unit Goals included providing legal support for all capital market activities, asset acquisitions and dispositions, development activities and property operations; oversight of all Company litigation; supervision of
all insurance placements; providing valuable advice to the Board and its committees on areas of corporate governance and other related matters, sustainability and enterprise risk management initiatives. Mr. Strohm oversaw the complex legal
aspects of the Companys significant dispositions and capital markets activities during 2016 and its complex commercial litigation and insurance placements.
For 2016, Mr. Strohm received a score of 150% of Target on his Business Unit Goals, a score of 100% of Target on his individual goals and a score of 53%
of Target on the Corporate Goals, resulting in an overall achievement of 87% of Target on his Performance Bonus and his Performance Equity Grant. Mr. Strohms 2016 total compensation (valuing his LTI Award at target) was approximately 95%
of his 2016 Target compensation and approximately 81% of his actual 2015 earned total compensation.
2016 Actual Performance Bonus and Performance
Equity Grants under the Annual Incentive Plan
The following table sets forth the target Performance Bonus and target Performance Equity Grants
established in December 2015 and the actual awards made in February 2017 with respect to performance under the Annual Incentive Plan in 2016 for each of the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
Performance
Bonus
|
|
% of
Target
Achieved
|
|
Actual
Performance
Bonus
|
|
Target
Performance
Equity Grant
|
|
% of
Target
Achieved
|
|
Actual
Performance
Equity Grant
|
D. Neithercut
|
|
$1,800,000
|
|
77%
|
|
$1,392,300
|
|
$1,800,000
|
|
77%
|
|
$1,392,300
|
D. Santee
|
|
600,000
|
|
87%
|
|
522,000
|
|
600,000
|
|
87%
|
|
522,000
|
A. George
|
|
600,000
|
|
87%
|
|
522,000
|
|
600,000
|
|
87%
|
|
522,000
|
M. Parrell
|
|
600,000
|
|
87%
|
|
522,000
|
|
600,000
|
|
87%
|
|
522,000
|
B.
Strohm
|
|
500,000
|
|
87%
|
|
435,000
|
|
500,000
|
|
87%
|
|
435,000
|
2016 Long-Term Incentive Plan
The following chart shows the number of LTI Awards awarded to each of the named executive officers under the 2016 LTI Plan, covering the three-year
performance period from January 1, 2016 through December 31, 2018, with the
pre-established
quantitative performance metrics and potential payout levels described on pages 23 and 24.
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 2018 LTI Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Below Threshold
|
|
Threshold
|
|
Target (1)
|
|
Maximum
|
|
|
D. Neithercut
|
|
0
|
|
20,325
|
|
40,650
|
|
81,300
|
|
|
D. Santee
|
|
0
|
|
6,845
|
|
13,690
|
|
27,380
|
|
|
A. George
|
|
0
|
|
6,845
|
|
13,690
|
|
27,380
|
|
|
M. Parrell
|
|
0
|
|
6,845
|
|
13,690
|
|
27,380
|
|
|
B.
Strohm
|
|
0
|
|
5,704
|
|
11,409
|
|
22,818
|
|
|
(1)
|
The target number of share awards is derived by dividing the target value of such awards ($3,600,000 for Mr. Neithercut; $1,200,000 for Mr. Santee, Mr. George and Mr. Parrell; and $1,000,000 for
Mr. Strohm) by the Monte Carlo value as of the date of the award of $88.56 per restricted unit and $87.65 per restricted share, as determined by an independent consultant to the Company.
|
32
Benchmarking
To measure the Companys executive compensation for competitiveness in the industry, the Compensation Committee engaged an independent consultant, FPL
Associates, L.P. (FPL), a nationally recognized compensation consultant, to conduct an analysis that benchmarked the Companys executive compensation against a peer group of other large REITs. The Compensation Committee used this
information as context for decisions about compensation practices and about pay levels for the executive officers.
|
|
|
|
|
PEER GROUP
|
1.
|
|
Simon Property Group, Inc.
|
|
The 2016
peer group
consisted of 17 other public REITs across a variety of asset classes (i.e., multifamily, office, industrial, hotel,
retail, self-storage, health care, specialty and diversified.) These peer group companies have been selected primarily based on having a similar size to Equity Residential (all are S&P 500 companies with a minimum level of total capitalization
of $10 billion). The REITs included in this peer group are shown as ranked by the total capitalization used in the FPL analysis.
|
2.
3.
|
|
American Tower Corporation
Public Storage
|
|
|
|
Equity Residential
|
|
4.
5.
|
|
General Growth Properties, Inc.
Welltower Inc.
|
|
6.
|
|
ProLogis, Inc.
|
|
7.
|
|
Vornado Realty Trust
|
|
8.
|
|
Boston Properties, Inc.
|
|
9.
|
|
AvalonBay Communities, Inc.
|
|
10.
|
|
Ventas, Inc.
|
|
11.
|
|
HCP, Inc.
|
|
12.
|
|
SL Green Realty Corp.
|
|
13.
|
|
Essex Property Trust, Inc.
|
|
14.
|
|
Macerich Company
|
|
15.
16.
17.
|
|
Kimco Realty Corporation
Host Hotels & Resorts, Inc.
UDR, Inc.
|
|
FPL compared the individual components and total compensation of the Companys executives to the fiscal year 2015 earned
compensation and 2016 target level of compensation of executives in comparable positions within the peer group. The tables provided to the Compensation Committee highlighted the 25th percentile, median, average, 75th percentile and 90th percentile
market practices. FPL found that total compensation for the Companys named executive officers placed it near the median for the peer group.
FPL
also analyzed the level of compensation provided to the Companys named executive officers on a single year basis as it related to both total capitalization and market capitalization (at December 31, 2015), finding that the Company ranked
at the 83rd percentile in total capitalization (4th largest) and market capitalization (4th largest), but at only the 44th percentile in total compensation.
To maintain the independence of the firms advice, FPL did not provide any services for the Company other than those described here as well as consulting
to the Compensation Committee regarding the Companys Executive and Trustee Compensation Programs. In 2016, the Compensation Committee conducted a conflict of interest assessment, and no conflict of interest on the part of FPL was identified.
33
Compensation Clawback Policy
Under Section 304 of the Sarbanes-Oxley Act, if the Company is required to restate its financial results due to material noncompliance with any financial
reporting requirement under the securities laws as a result of misconduct, the Chief Executive Officer and Chief Financial Officer must reimburse the Company for (i) any bonus or other incentive-based or equity-based compensation received
during the 12 months following the public issuance of the
non-compliant
document, and (ii) any profits realized from the sale of its securities during those 12 months.
Tax Deductibility of Compensation
If applicable,
Section 162(m) of the Internal Revenue Code of 1986, as amended (IRC), would limit the deductibility on the Companys tax return of compensation over $1 million to any covered employee unless, in general, the
compensation is paid pursuant to a plan that is performance based,
non-discretionary
and has been approved by the Companys shareholders. The Company believes that because it qualifies as a real estate
investment trust under the IRC and pays dividends sufficient to minimize federal income taxes, the payment of compensation that may not satisfy the requirements of Section 162(m) will generally not materially affect the Companys net income.
For these reasons, the Compensation Committees compensation policy and practices are not directly guided by considerations relating to Section 162(m).
Compensation Risks
The Compensation Committee reviewed
the elements of the Companys compensation to determine whether they encourage excessive risk taking and concluded that any risks arising from the Companys compensation policies are not reasonably likely to have a material adverse effect
on the Company. The Compensation Committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks.
2017 Target Compensation
The 2017 target compensation
and compensation mix for our named executive officers are unchanged from 2016.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Companys Compensation Discussion and Analysis provided above with the Companys
management. Based on this review and discussion, we recommended to the Board the Analysis be included in this Proxy Statement.
Compensation Committee:
Mary Kay Haben, Chair
John W. Alexander
Charles L. Atwood
Bradley A. Keywell
Mark S. Shapiro
B. Joseph White
34
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company to our named executive officers during the years shown.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Salary
|
|
Share Awards
(1)
|
|
Option Awards
(1)
|
|
Non-Equity
Incentive Plan
Compensation
(2)
|
|
All Other
Compensation
(3)
|
|
Total
Compensation
(4)
|
|
David J. Neithercut
President & Chief Executive Officer
|
2016
2015
2014
|
|
$900,000
900,000
900,000
|
|
$6,370,243
11,827,594
6,167,917
|
|
$1,392,295
0
1,061,185
|
|
$0
0
0
|
|
$11,166
10,938
10,581
|
|
$8,673,704
12,738,532
8,139,683
|
|
David S. Santee
Executive Vice President & Chief Operating Officer
|
2016
2015
2014
|
|
$600,000
600,000
600,000
|
|
$2,056,670
2,651,859
1,980,923
|
|
$0
0
327,052
|
|
$522,000
856,800
726,000
|
|
$7,950
7,950
7,800
|
|
$3,186,620
4,116,609
3,641,775
|
|
Alan W. George
Executive Vice President & Chief Investment Officer
|
2016
2015
2014
|
|
$600,000
600,000
600,000
|
|
$2,101,669
2,627,858
2,122,950
|
|
$0
0
303,003
|
|
$522,000
901,800
0
|
|
$16,702
16,860
15,769
|
|
$3,240,371
4,146,518
3,041,722
|
|
Mark J. Parrell
Executive Vice President & Chief Financial Officer
|
2016
2015
2014
|
|
$600,000
600,000
600,000
|
|
$2,056,670
2,525,915
1,231,208
|
|
$0
0
243,750
|
|
$522,000
856,800
663,000
|
|
$7,950
15,209
7,800
|
|
$3,186,620
3,997,924
2,745,758
|
|
Bruce C. Strohm
Executive Vice President & General Counsel
|
2016
2015
2014
|
|
$500,000
500,000
500,000
|
|
$1,713,962
2,898,907
1,573,727
|
|
$0
0
243,750
|
|
$435,000
0
0
|
|
$11,107
10,908
10,548
|
|
$2,660,069
3,409,815
2,328,025
|
35
(1)
|
Share Awards and Option Awards
.
|
(a)
Annual Incentive Plan and LTI Awards
. The dollar amount shown is the grant date fair value of the Share Awards and Option
Awards granted under the Companys Annual Incentive Plan during the listed years for services performed in the prior year and the target grant date fair value of the LTI Awards which remain subject to earn out at the end of the three-year
performance period from January 1, 2015 to December 31, 2017 for the 2015 grant and from January 1, 2016 to December 31, 2018 for the 2016 grant. As further described in the CD&A, the actual amounts paid out at the end of the
respective three-year performance periods may range from 0% to 200% of the target number of LTI Awards. The grant date value of the 2015 LTI Awards, if earned at the 200% maximum level, for the named executive officers is: $7,199,975 for
Mr. Neithercut; $2,399,870 for each of Mr. Santee, Mr. George and Mr. Parrell; and $1,999,922 for Mr. Strohm. The grant date value of the 2016 LTI Awards, if earned at the 200% maximum level, for the named executive officers
is: $7,199,928 for Mr. Neithercut; $2,399,857 for each of Mr. Santee, Mr. George and Mr. Parrell; and $1,999,998 for Mr. Strohm. Assumptions used in the calculation of grant date fair value for the primary grant of Share
Awards and Option Awards each year are included in footnotes 2 and 12 of the audited financial statements included in the Companys Annual Reports on Form
10-K
for 2016, 2015 and 2014.
(b)
Performance Bonuses Paid in the form of Share Awards or Option Awards
. Officers are offered the opportunity to receive some
or all of their Performance Bonus in fully vested restricted units or fully vested options as an alternative to cash. The 2014 Performance Bonuses for Mr. Neithercut, Mr. George and Mr. Strohm and the 2015 Performance Bonuses for
Mr. Neithercut and Mr. Strohm, were paid in the form of fully vested restricted units and are included in the Share Awards Column. The 2016 Performance Bonus for Mr. Neithercut was paid in the form of fully vested options and is
included in the Options Awards column. The grant date fair value of $5.86 per Option Award granted to Mr. Neithercut for his 2016 Performance Bonus was calculated using the modified Black-Scholes option pricing model and the following
assumptions: an estimated time until exercise of 5 years, a volatility of 15.34%, a risk-free interest rate of 1.93%, and a dividend yield of 3.08%.
(2)
|
Non-Equity
Incentive Plan Compensation
. Represents discretionary cash performance bonuses by the Company for the year in which the services were performed, even though paid
in February of the following year. Accordingly, the amounts listed for 2016, 2015 and 2014 consist of Performance Bonuses paid in February 2017, 2016 and 2015, respectively. Any Performance Bonuses paid in the form of fully vested restricted units
or fully vested options as an alternative to cash are included in the amounts shown in the Share Awards and Option Awards columns.
|
(3)
|
All Other Compensation.
Represents other benefits provided to the named executive officers, including Company matching and contributions (if any) to the Companys 401(k) plan, the payment of life insurance
premiums and the cost of executive physicals.
|
(4)
|
Total Compensation for 2015
. Per SEC rules, total compensation shown in this SC Table includes the value of all equity awards granted in a calendar year, whether or not earned for performance in that year.
Accordingly, the amounts for 2015 are substantially higher than the amounts actually paid because they represent the doubling of equity awards in 2015 resulting from the overlap of the Companys current and former executive compensation
programs.
|
36
GRANTS OF PLAN-BASED AWARDS IN 2016
The following table shows the number of Share Awards and LTI Awards granted to the named executive officers in the calendar year 2016. No Option Awards were
granted to the named executive officers in 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Share
Awards
Granted (1)
|
|
Estimated Future
Payouts of LTI Awards Under
Equity Incentive Plan (2)
|
|
Grant Date
Fair Value
of Awards
(3)
|
|
|
|
Grant Date
|
|
|
Below Threshold
(#)
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
D. Neithercut
|
|
1/1/16
|
|
|
|
0
|
|
20,325
|
|
40,650
|
|
81,300
|
|
|
$3,599,964
|
|
|
|
2/4/16
|
|
72,644
|
|
|
|
|
|
|
|
|
|
|
5,540,558
|
|
D. Santee
|
|
1/1/16
|
|
|
|
0
|
|
6,845
|
|
13,690
|
|
27,380
|
|
|
1,199,929
|
|
|
|
2/4/16
|
|
11,233
|
|
|
|
|
|
|
|
|
|
|
856,741
|
|
A. George
|
|
1/1/16
|
|
|
|
0
|
|
6,845
|
|
13,690
|
|
27,380
|
|
|
1,199,929
|
|
|
|
2/4/16
|
|
11,823
|
|
|
|
|
|
|
|
|
|
|
901,740
|
|
M. Parrell
|
|
1/1/16
|
|
|
|
0
|
|
6,845
|
|
13,690
|
|
27,380
|
|
|
1,199,929
|
|
|
|
2/4/16
|
|
11,233
|
|
|
|
|
|
|
|
|
|
|
856,741
|
|
B. Strohm
|
|
1/1/16
|
|
|
|
0
|
|
5,704
|
|
11,409
|
|
22,818
|
|
|
999,999
|
|
|
|
2/4/16
|
|
18,722
|
|
|
|
|
|
|
|
|
|
|
1,427,926
|
|
(1)
|
Represents the February 2016 grant of Share Awards (including restricted units taken as a portion or all of a Performance Bonus) for services performed in 2015 which were approved by the Board on January 26, 2016.
The Share Awards vest in full on the third anniversary of the grant date (subject to normal employment and retirement provisions previously discussed), except for the fully vested restricted units granted to Mr. Neithercut and Mr. Strohm
(36,322, and 9,361, respectively) as a Performance Bonus.
|
(2)
|
Represents the threshold (50%), target (100%) and maximum (200%) number of LTI Awards approved by the Board on December 17, 2015 and granted in January 2016 for the 2016-2018 performance period. The target number
of LTI Awards is derived by dividing the grant date fair value of such awards ($3,599,964 for Mr. Neithercut; $1,199,929 for each of Mr. Santee, Mr. George and Mr. Parrell; and $999,999 for Mr. Strohm) by the Monte Carlo
value as of the date of the award of $88.56 per restricted unit and $87.65 per restricted share. For additional information regarding the terms of LTI Awards, including vesting schedule and dividends, see the CD&A.
|
(3)
|
The grant date fair value of the Share Awards was calculated based on the closing price of the Companys common shares on the grant date of $76.27. The grant date fair value of LTI Awards reflects the value of the
number of LTI Awards if earned at Target, using a Monte Carlo value as of the date of the award of $88.56 per restricted unit and $87.65 per restricted share.
|
37
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Share Awards
|
|
|
LTI Awards
|
|
|
|
|
|
|
Number of
Unexercised
Option Awards
(1)
Exercisable Unexercisable
|
|
|
|
Option
Exercise
Price
(1)
|
|
|
|
Option
Expiration
Date
(2)
|
|
|
|
Number of
Earned/
Unvested
Share Awards
(3)
|
|
|
|
Market
Value of Earned/
Unvested
Share
Awards
(4)
|
|
|
|
Number of
Unearned/
Unvested
LTI Awards
(5)
|
|
|
|
Market
Value of Unearned/
Unvested
LTI Awards
(6)
|
|
|
D. Neithercut
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,562
|
|
|
|
|
|
|
|
$19.67
|
|
|
|
02/06/19
|
|
|
|
178,378
|
|
|
|
$11,480,408
|
|
|
|
7,609
|
|
|
|
$489,715
|
|
|
|
|
|
|
236,353
|
|
|
|
|
|
|
|
28.10
|
|
|
|
02/05/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510,633
|
|
|
|
|
|
|
|
45.28
|
|
|
|
09/23/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,988
|
|
|
|
|
|
|
|
45.78
|
|
|
|
02/07/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
276,125
|
|
|
|
|
|
|
|
51.34
|
|
|
|
02/03/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,473
|
|
|
|
|
|
|
|
46.72
|
|
|
|
02/07/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,040
|
|
|
|
45,524
|
|
|
|
48.13
|
|
|
|
02/06/24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. Santee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,028
|
|
|
|
48.13
|
|
|
|
02/06/24
|
|
|
|
64,394
|
|
|
|
4,144,398
|
|
|
|
2,539
|
|
|
|
163,410
|
|
|
A. George
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,157
|
|
|
|
|
|
|
|
45.78
|
|
|
|
02/07/21
|
|
|
|
54,558
|
|
|
|
3,511,353
|
|
|
|
2,536
|
|
|
|
163,217
|
|
|
|
|
|
|
84,326
|
|
|
|
|
|
|
|
51.34
|
|
|
|
02/03/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,916
|
|
|
|
|
|
|
|
46.72
|
|
|
|
02/07/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,994
|
|
|
|
12,999
|
|
|
|
48.13
|
|
|
|
02/06/24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. Parrell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,382
|
|
|
|
|
|
|
|
51.34
|
|
|
|
02/03/22
|
|
|
|
49,551
|
|
|
|
3,189,102
|
|
|
|
2,536
|
|
|
|
163,217
|
|
|
|
|
|
|
10,455
|
|
|
|
10,457
|
|
|
|
48.13
|
|
|
|
02/06/24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. Strohm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,906
|
|
|
|
|
|
|
|
51.34
|
|
|
|
02/03/22
|
|
|
|
41,496
|
|
|
|
2,670,683
|
|
|
|
2,114
|
|
|
|
136,057
|
|
|
|
|
|
|
34,768
|
|
|
|
|
|
|
|
46.72
|
|
|
|
02/07/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,910
|
|
|
|
10,457
|
|
|
|
48.13
|
|
|
|
02/06/24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As a result of the special dividends paid by the Company in 2016, the exercise price and number of all outstanding options were adjusted in accordance with the provisions of the Companys 2011 Share Incentive Plan.
|
(2)
|
These Option Awards, which were granted ten years prior to the stated expiration date, vest in equal installments over three years from the grant date (subject to normal employment/retirement provisions), other than the
Option Awards granted to Mr. Neithercut on September 23, 2011 as a portion of a long-term retention grant which vested in full on February 4, 2016.
|
(3)
|
These Share Awards vest in full on the third anniversary of the grant date (subject to normal employment/ retirement provisions).
|
(4)
|
Reflects the number of earned/unvested Share Awards multiplied by $64.36, the closing price of the Companys common shares at December 30, 2016, the last business day of the year.
|
(5)
|
Reflects the number of LTI Awards (which are payable in the form of Share Awards and cliff vest on February 5, 2018, subject to normal employment/retirement provisions) granted in February 2015, valued at
approximately 19% of the target grant, assuming the three-year performance period from 2015-2017 had terminated and been valued as of December 31, 2016. The 2016 LTI Awards, granted in January 2016, had no value, assuming the three-year
performance period from 2016-2018 had terminated and been valued as of December 31, 2016. The actual number of Share Awards issued will not be determined until the end of the respective three-year performance period.
|
(6)
|
Reflects the number of unearned/unvested LTI Awards calculated pursuant to the previous footnote and multiplied by $64.36, the closing price of the Companys common shares at December 30, 2016, the last
business day of the year.
|
38
OPTION EXERCISES AND SHARES VESTED DURING 2016
The following table shows the value realized by the named executives upon exercise of Option Awards and the vesting of Share Awards during 2016.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Share Awards
(1)
|
|
Number of Shares
Acquired on Exercise
|
|
Value Realized
on Exercise
|
|
Number of Shares
Acquired on Vesting
|
|
Value Realized
on Vesting
|
D. Neithercut
|
|
100,000
|
|
$5,408,724
|
|
195,386
|
|
$14,519,367
|
D. Santee
|
|
26,982
|
|
634,763
|
|
24,599
|
|
1,779,978
|
A. George
|
|
45,000
|
|
979,500
|
|
35,381
|
|
2,561,954
|
M. Parrell
|
|
36,874
|
|
938,849
|
|
31,961
|
|
2,314,927
|
B.
Strohm
|
|
24,552
|
|
645,895
|
|
35,466
|
|
2,604,315
|
(1)
|
Reflects the vesting of Share Awards granted in 2013 for services performed in 2012; for Mr. Neithercut, also includes 61,170 Share Awards granted to him on September 23, 2011 as a portion of a long-term
retention grant that vested in full on February 4, 2016; and for Mr. Neithercut and Mr. Strohm, also includes Share Awards granted on February 4, 2016 in lieu of cash as a Performance Bonus for service performed in 2015 that
vested in full on the grant date.
|
PENSION BENEFITS
The Company does not have a pension plan for its executive officers and therefore, there are no pension benefits to disclose.
NONQUALIFIED DEFERRED COMPENSATION
The
following table shows the current value of the compensation previously earned and deferred by the named executive officers to the Companys employee funded Deferred Compensation Plan during 2016. As the Company does not make contributions to
the Plan and does not guaranty any investment return, the balances shown are comprised entirely of contributions made by the executive officers from their salary, bonus or vested Share Awards for prior years and the earnings on those amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Contributions
in 2016
|
|
Company
Contributions
in 2016
|
|
Earnings
in 2016
|
|
Withdrawals
in 2016
|
|
Balance at
December 31,
2016
|
D. Neithercut
|
|
$0
|
|
$0
|
|
$1,924,006
|
|
$0
|
|
$21,517,047
|
D. Santee
(1)
|
|
467,646
|
|
0
|
|
138,820
|
|
0
|
|
3,657,514
|
A. George
|
|
0
|
|
0
|
|
314,838
|
|
0
|
|
3,486,834
|
M. Parrell
(1)
|
|
462,966
|
|
0
|
|
241,828
|
|
0
|
|
4,135,700
|
B.
Strohm
|
|
0
|
|
0
|
|
177,565
|
|
0
|
|
9,661,233
|
(1)
|
All of Mr. Parrell and Mr. Santees contributions are also included in the Summary Compensation Table for their respective salary and bonus for service in 2016. For Mr. Santee, the amount shown in
the balance column includes the following amounts previously reported as annual salary and/or bonus in the Summary Compensation table: $571,507 paid in 2015 and $91,400 paid in 2014. For Mr. Parrell, the amount shown in the balance column
includes the following amounts previously reported as annual salary in the Summary Compensation table: $61,469 paid in 2015 and $97,500 paid in 2014.
|
39
The Plan allows all Company employees with annual total cash compensation of $120,000 or more to defer receipt of
up to 25% of their base salary and up to 100% of their cash Performance Bonus. Any of this deferred cash compensation is deposited by the Company directly with the independent trustee of the Plan, and invested, at the option of the participant, in a
limited number of independent mutual funds. The Plan also allows the same eligible employees to defer receipt of restricted shares beyond the vesting date. Deferral elections are generally made by eligible employees during an open enrollment period
each year for amounts to be earned or granted in the following year. Benefits under the Plan will be paid out, in either a lump sum or in annual installments, upon certain events such as termination of employment, disability, death, change in
control or a
one-time
distribution at or after age 50.
POTENTIAL PAYMENTS UPON TERMINATION OF
EMPLOYMENT, RETIREMENT OR CHANGE IN CONTROL
Change in Control/Severance Agreements
The Company has
Change in Control/Severance agreements (the CIC Agreements) with the named executive officers that entitle them to receive certain severance payments upon termination of employment following a Change in Control. The Company adopted the
CIC Agreements to help ensure that the Companys executives maintain neutrality in their decision-making process and act in the best interests of shareholders in the event of a potential merger or acquisition. A Change in Control
will generally be deemed to have occurred upon a third partys acquisition of 30% or more of the Companys common shares or assets, whether through purchase, merger or consolidation.
In the event that an executive is dismissed without Cause or resigns for Good Reason (all such terms are defined in the CIC Agreements) during the three-year
period following a Change in Control, such person will be entitled to all accrued but unpaid compensation, a prorated bonus and long-term incentive compensation grant through the date of termination and a lump sum cash severance payment equal to a
multiple (2.25 for Mr. Neithercut, Mr. George, Mr. Parrell and Mr. Strohm and 2.0 for Mr. Santee) of the executives annual base salary plus the average of the executives annual Performance Bonus for the last
three calendar years. The executive is also entitled to continued medical, dental, life and disability benefits for 2.25 years (2.0 years for Mr. Santee). If any payments made to an executive would result in an excise tax imposed by
Section 4999 of the IRC, the executive would become entitled to receive a tax reimbursement that would put the executive in the same financial position
after-tax
that he would have been in if the excise
tax did not apply to such amounts. The Company will not enter into any new agreements with its executive officers that include new excise tax
gross-up
provisions with respect to payments contingent upon a
Change in Control and has not since March 2009.
The Companys termination of an executive is for Cause if: (i) the executive has been convicted
of a felony or dishonesty; or (ii) the termination is evidenced by a resolution adopted in good faith by at least
two-thirds
of the Board that the executive either intentionally and continually failed
substantially to perform his reasonable assigned duties for more than thirty days after written notice, or the executive intentionally engaged in conduct which is demonstrably and materially injurious to the Company. A termination by an executive is
for Good Reason, and is thus treated the same as termination by the Company without Cause, if it results from: (i) a material diminution in the executives status, position or responsibilities; (ii) any reduction in the
executives base salary or overall compensation and benefits; (iii) the relocation of the executives primary office by more
40
than 30 miles; or (iv) a material breach by the Company of the CIC Agreement, the Companys insolvency or any purported termination of the executives employment for Cause which
does not comply with the CIC Agreement.
The following table discloses the potential severance benefits that would be provided by the Company to each
named executive officer under the Companys contractual obligations in the event of the various termination of employment and retirement scenarios described below or a Change in Control of the Company on December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event
|
|
D. Neithercut
|
|
|
D. Santee
|
|
|
A. George
|
|
|
M. Parrell
|
|
|
B. Strohm
|
|
Change in Control with
termination without Cause:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance (1)
|
|
$
|
6,748,718
|
|
|
$
|
2,691,200
|
|
|
$
|
3,016,350
|
|
|
$
|
2,855,475
|
|
|
$
|
2,470,500
|
|
Accrued Bonus and LTC (2)
|
|
|
3,600,000
|
|
|
|
1,200,000
|
|
|
|
1,200,000
|
|
|
|
1,200,000
|
|
|
|
1,000,000
|
|
Health Care Benefits (3)
|
|
|
42,991
|
|
|
|
51,594
|
|
|
|
58,332
|
|
|
|
56,004
|
|
|
|
43,535
|
|
Excise Tax
Gross-Up
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
10,391,709
|
|
|
$
|
3,942,794
|
|
|
$
|
4,274,682
|
|
|
$
|
4,111,479
|
|
|
$
|
3,514,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control without
termination; Death or Disability;
Voluntary Resignation or
Retirement; Termination for
Cause:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Bonus and LTC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Care Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excise Tax
Gross-Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The cash severance due each named executive is 2.25 times (2.0 times for Mr. Santee) the multiple of base salary and average bonus paid in the last three calendar years.
|
(2)
|
Represents the target Performance Bonus and the target Performance Equity Grant of Share Awards and Option Awards under the Annual Incentive Plan for services performed in 2016, which otherwise would have been paid in
2017.
|
(3)
|
Represents the cost of the continuation of health care benefits for the applicable time periods described above in Change of Control/Severance Agreements. For Mr. Neithercut, Mr. Santee and
Mr. George who are eligible for retirement under the Rule of 70 (defined below) and Mr. Strohm who is eligible under the age 62 retirement provisions, these amounts do not include the additional health benefits described below in
Other Retirement Agreements.
|
(4)
|
Upon a Change in Control of the Company, the executive may be subject to certain excise taxes under Section 280G of the IRC to the extent that the present value of certain change in control payments received by the
executive pursuant to the Change in Control of the Company equals or exceeds an amount equal to the prior five year average of the executives form
W-2
compensation. The Company has agreed to reimburse
the executives pursuant to the Change in Control/Severance Agreements described above for those excise taxes as well as any income and excise taxes payable by the executives as a result of any reimbursements for such taxes. The Company will not
enter into any new agreements with its executive officers that include new excise tax
gross-up
provisions with respect to payments contingent upon a Change in Control.
|
41
Pursuant to the Companys Share Incentive Plans, in the event of a Change in Control, all of the
Companys employees, and any individual employee who dies or is disabled, receive accelerated vesting of unvested Option Awards and outstanding Share Awards. The following table discloses the value of the accelerated vesting of equity awards
for each of the named executive officers assuming a Change in Control, death or disability as of December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event
|
|
D. Neithercut
|
|
|
D. Santee
|
|
|
A. George
|
|
|
M. Parrell
|
|
|
B. Strohm
|
|
Change in Control;
Death or Disability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested equity awards (1)
(2)
|
|
|
$12,708,978
|
|
|
|
$4,535,482
|
|
|
|
$3,885,544
|
|
|
|
$3,522,036
|
|
|
|
$2,976,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The dollar amount shown equals: (i) the number at December 31, 2016 of outstanding unvested Share Awards (including the number of unvested 2015 LTI Awards valued at approximately 19% of target, assuming the
three-year performance period from 2015 2017 had terminated and been valued as of December 31, 2016) multiplied by $64.36, the closing price of the Companys common shares on December 30, 2016, the last business day of the
year; and (ii) the
in-the-money
value of unvested Option Awards at December 31, 2016 ($64.36 less the exercise price of
in-the-money
Option Awards). As of December 31, 2016, the 2016 LTI Awards were valued at 0% of the target grant.
|
(2)
|
As each of the named executive officers, other than Mr. Parrell, has continued vesting rights in all unvested equity awards pursuant to the retirement policies described below in Retirement Benefits,
the accelerated vesting of such awards does not convey an additional material benefit to any officer, other than Mr. Parrell.
|
Amounts Not Shown in Tables
The following benefits
apply generally to all similarly situated employees and are not included in the above tables:
|
|
Distributions of plan balances under the Companys Deferred Compensation Plan as shown in the Nonqualified Deferred Compensation table; and
|
|
|
Payments and benefits to the extent they are provided on a
non-discriminatory
basis to all employees generally upon termination of employment including: (i) accrued salary
and vacation pay; (ii) distributions of plan balances under the Companys 401(k) plan; and (iii) life insurance proceeds in the event of death.
|
Retirement Benefits
While the Company has no mandatory
retirement age for employees, the Companys Share Incentive Plans do provide for certain benefits for employees upon voluntary retirement at or after age 62 or upon meeting certain age/length of service requirements. For employees hired prior
to January 1, 2009, retirement will mean the voluntary termination of employment: (i) at or after age 62; or (ii) prior to age 62 after meeting the requirements of the Rule of 70. For employees hired after January 1, 2009,
retirement will mean the voluntary termination of employment (other than for cause) after meeting the requirements of the Rule of 70.
The Rule of 70 is
met when an employees years of service with the Company (which must be at least 15 years) plus his or her age (which must be at least 55 years) on the date of retirement equals or exceeds 70 years. In addition, the employee must give the
Company at least 6 months
42
advance written notice of his or her intention to retire and sign a release upon termination of employment, releasing the Company from customary claims and agreeing to ongoing
non-competition
and employee
non-solicitation
provisions. Mr. Neithercut, Mr. Santee and Mr. George are currently eligible for retirement under the Rule of 70
and Mr. Strohm is currently eligible for retirement under the age 62 retirement provisions. The Rule of 70 does not apply to Trustees.
For employees
hired prior to January 1, 2009 who retire at or after age 62 or for trustees who retire at or after age 72, such individuals unvested Share Awards and Option Awards would immediately vest, and Option Awards would continue to be
exercisable for the balance of the applicable
ten-year
option period. For all other employees (those hired after January 1, 2009 and those hired before such date who choose to retire prior to age 62),
upon such retirement under the Rule of 70, such employees unvested Share Awards and Option Awards would continue to vest per the original vesting schedule (subject to immediate vesting upon the occurrence of a subsequent Change in Control of
the Company or the employees death or disability), and Option Awards would continue to be exercisable for the balance of the applicable
ten-year
option period, subject to the employees compliance
with the
non-competition
and employee
non-solicitation
provisions. If an employee violates these provisions after such retirement, all unvested Share Awards and unvested
and vested Option Awards at the time of the violation would be void, unless otherwise approved by the Compensation Committee.
Other Retirement
Agreements
Mr. Neithercut, Mr. George and Mr. Strohm each entered into Split Dollar Life Insurance Agreements with the Company in
December 1997, pursuant to which the Company purchased split dollar life insurance policies for the executives with death benefits of approximately $2 million each. Upon the executives death or qualified retirement, the executive will be
fully vested in the policy and the Company will release its collateral assignment of such policy, thereby releasing its right to receive any portion of the life insurance benefits and the premiums previously paid by it.
The Company also entered into Executive Retirement Benefits Agreements with Mr. Neithercut, Mr. George and Mr. Strohm in February 2001, which
provide that upon the executives qualified retirement, the executive will be eligible to receive health and life insurance benefits for the remainder of his life in the same amounts and at the same rates as applicable to any then employed
executive officer. The present value of these payments, assuming termination of employment as of December 31, 2016, is $540,759 for Mr. Neithercut; $595,000 for Mr. George and $506,532 for Mr. Strohm.
43
TRUSTEE COMPENSATION
To measure the Companys trustee compensation for competitiveness in the industry, in 2016 the Compensation Committee engaged FPL, its independent
compensation consultant, to conduct an analysis that benchmarked the Companys trustee compensation against a peer group of other large REITs. As a result of this analysis and to more closely align trustee compensation with the median of
director pay at peer companies, the annual retainer for Trustees (other than Sam Zell and David Neithercut) was increased from $180,000 to $210,000 (comprised of $75,000 in cash and $135,000 of Company equity), with no changes to the committee,
Chair or Lead Trustee fees.
Concurrently with this increase to the annual retainer, the Board also increased its share ownership requirement from
$250,000 to $375,000. Trustees are now expected to own, within three years of joining the Board, Company equity with an aggregate value of no less than five times the cash retainer, which at the current cash retainer of $75,000, is $375,000
(increased from $250,000 previously). For a more detailed description of these ownership requirements, see Share Ownership Guidelines on page 6.
Accordingly, effective June of 2016, the compensation of the Companys Trustees (excluding Mr. Zell and Mr. Neithercut), calculated for the
fiscal year from the 2016 annual shareholder meeting to the 2017 annual shareholder meeting, consists of an annual cash retainer and Share Awards and Option Awards with values as follows:
|
|
|
|
|
|
|
Fees
|
|
Annual Retainer
|
|
|
|
Cash
|
|
|
$75,000
|
|
Equity (Share Awards and Option
Awards)
|
|
|
135,000
|
|
Total:
|
|
|
$
210,000
|
|
|
|
Other Compensation
|
|
|
|
Lead Trustee
|
|
|
$30,000
|
|
Audit Chair
|
|
|
20,000
|
|
Compensation Chair
|
|
|
20,000
|
|
Governance Chair
|
|
|
15,000
|
|
Audit Member
|
|
|
10,000
|
|
Compensation Member
|
|
|
10,000
|
|
Governance Member
|
|
|
7,500
|
|
Executive
Member
|
|
|
4,000
|
|
Trustees who are first appointed or elected to the Board after the beginning of a fiscal year receive prorated cash fees and
long-term incentive grants for their first year of service. The Company also reimburses the trustees for travel and other expenses incurred in connection with their activities on behalf of the Company, with the exception of Mr. Zell who is
responsible for his own business related expenses.
Trustees do not have pension benefits and are not entitled to any above-market or preferential
earnings on nonqualified deferred compensation. Trustees are eligible to purchase shares not to exceed $100,000 per year under the Companys Employee Share Purchase Plan at the discounted purchase price under such plan.
Non-employee
trustees do not participate in the Companys 401(k) Plan and do not receive any matching contributions on any trustee compensation.
44
The following table shows the compensation paid to our
non-employee
Trustees for their service on the Board during the 2016 calendar year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Cash Fees
|
|
|
Share
Awards
(1)
|
|
|
Option
Awards
(1)
|
|
|
Total
|
|
Samuel Zell
|
|
|
|
|
|
|
$3,249,975
|
(2)
|
|
|
|
|
|
|
$3,249,975
|
|
|
|
|
|
|
|
|
1,083,263
|
(3)
|
|
|
|
|
|
|
1,083,263
|
|
John W. Alexander
|
|
|
$85,618
|
|
|
|
134,951
|
|
|
|
|
|
|
|
220,569
|
|
Charles L. Atwood
|
|
|
119,618
|
|
|
|
134,951
|
|
|
|
|
|
|
|
254,569
|
|
Linda Walker Bynoe
|
|
|
93,736
|
|
|
|
134,951
|
|
|
|
|
|
|
|
228,687
|
|
Connie K. Duckworth
|
|
|
78,118
|
|
|
|
134,951
|
|
|
|
|
|
|
|
213,069
|
|
Mary Kay Haben
|
|
|
105,618
|
|
|
|
134,951
|
|
|
|
|
|
|
|
240,569
|
|
Bradley A. Keywell
|
|
|
78,118
|
|
|
|
134,951
|
|
|
|
|
|
|
|
213,069
|
|
John E. Neal
|
|
|
102,118
|
|
|
|
134,951
|
|
|
|
|
|
|
|
237,069
|
|
Mark S. Shapiro
|
|
|
85,618
|
|
|
|
134,951
|
|
|
|
|
|
|
|
220,569
|
|
Gerald A. Spector
|
|
|
78,118
|
|
|
|
134,951
|
|
|
|
|
|
|
|
213,069
|
|
Stephen E. Sterrett
|
|
|
78,118
|
|
|
|
134,951
|
|
|
|
|
|
|
|
213,069
|
|
B. Joseph
White
|
|
|
92,500
|
|
|
|
134,951
|
|
|
|
|
|
|
|
227,451
|
|
(1)
|
For service provided by the Board from the June 2016 Annual Meeting of Shareholders to the June 2017 Annual Meeting of Shareholders, each trustee (with the exception of Mr. Zell and Mr. Neithercut) received an
annual
long-term
compensation grant of $135,000 on June 16, 2016, which was allocated at the election of the trustee to any combination of Option Awards and Share Awards, utilizing the same valuation
criteria as approved by the Board for the annual long-term compensation grants to the Companys executive officers. Our employee trustee, Mr. Neithercut, received no additional compensation for his service as a Trustee during 2016. All
such Share Awards and Option Awards will vest in full on the first anniversary of the grant date. Trustees are also entitled to certain vesting benefits upon retirement, as described in the Retirement Benefits discussion in Executive
Compensation. Generally, retirement means termination of service on the Board (other than for cause) on or after age 72.
|
The
dollar value of the Share Awards was calculated based on the closing price of the Companys common shares on the grant date of $66.25.
(2)
|
For Mr. Zells services performed in 2016 as Chairman of the Board, his target compensation of $3,250,000 was paid in the form of a LTI Award which was awarded in January 2016 and remains subject to earn out
at the end of the three-year performance period from January 1, 2016 to December 31, 2018. The amount shown is the target grant date fair value of the 2016 LTI Award. As previously described in the CD&A, the actual amount paid out at
the end of the three-year performance period may range from 0% to 200% of the target number of the 2016 LTI Award. The grant date value of the 2016 LTI Award, if earned at the 200% maximum level, is $6,499,950.
|
(3)
|
For Mr. Zells services performed in 2015 as Chairman of the Board, a portion of his compensation of $3,250,000 was paid in the form of a long-term compensation grant of $1,083,263 on February 4, 2016,
which was allocated 100% to Share Awards utilizing the same valuation criteria approved by the Board for the annual long-term compensation grants to the Companys executive officers. The 14,203 Share Awards were granted at a share price equal
to the closing price of the Companys common shares on February 4, 2016 and vest in full on the third anniversary of the grant, subject to normal retirement provisions. The remaining portion ($2,166,626) of Mr. Zells
compensation for services performed in 2015 was paid in the form of a LTI Award granted in February 2015 for the 2015 2017 performance period, as reported in the Companys 2016 Proxy Statement.
|
45
The Company entered into a Retirement Benefits Agreement with Mr. Zell in October 2001 which provides him
with a cash retirement benefit after the termination of his service as Chairman of the Board. If Mr. Zells employment as Chairman is terminated for any reason, other than by the Company for cause, he (or his estate in the event of his
death) will be entitled to an annual retirement benefit of $500,000 (as increased by a CPI index from January 2002 through the termination date) over a
ten-year
period commencing on the termination date
.
The present value of these payments, assuming the termination of Mr. Zells employment as of December 31, 2016, is $5,615,096.
The
Company entered into a Deferred Compensation Agreement with Mr. Spector in January 2002 which provides him with a
ten-year
cash retirement benefit after the termination of his employment with the Company.
Mr. Spectors ten annual installments commenced on January 1, 2009 with an annual payment of $643,887. The present value estimate of the unpaid payments as of December 31, 2016 is $858,776.
The following table shows the number of outstanding unvested Share Awards and all outstanding Option Awards held by each
non-employee
Trustee at December 31, 2016.
|
|
|
|
|
|
|
|
|
Unvested
Share Awards
|
|
Unvested and Vested
Option Awards (1)
|
|
|
|
|
Samuel Zell
|
|
102,443 (2)
|
|
|
1,533,730
|
|
|
|
|
John W. Alexander
|
|
2,037
|
|
|
29,548
|
|
|
|
|
Charles L. Atwood
|
|
2,037
|
|
|
25,665
|
|
|
|
|
Linda Walker Bynoe
|
|
2,037
|
|
|
25,355
|
|
|
|
|
Connie K. Duckworth
|
|
2,037
|
|
|
|
|
|
|
|
Mary Kay Haben
|
|
2,037
|
|
|
18,370
|
|
|
|
|
Bradley A. Keywell
|
|
2,037
|
|
|
20,038
|
|
|
|
|
John E. Neal
|
|
2,037
|
|
|
|
|
|
|
|
Mark S. Shapiro
|
|
2,037
|
|
|
28,959
|
|
|
|
|
Gerald A. Spector
|
|
2,037
|
|
|
42,462
|
|
|
|
|
Stephen E. Sterrett
|
|
2,037
|
|
|
2,101
|
|
|
|
|
B. Joseph
White
|
|
2,037
|
|
|
28,959
|
|
|
(1)
|
As a result of the special dividends paid by the Company in 2016, the exercise price and the number of all outstanding options were adjusted in accordance with the provisions of the Companys 2011 Share Incentive
Plan.
|
|
(2)
|
Also includes 4,596 LTI Awards (which are payable in the form of Share Awards and cliff vest on February 5, 2018) granted in February 2015, valued at approximately 19% of the target grant, assuming the three-year
performance period from 2015-2017 had terminated and been valued as of December 31, 2016. The 2016 LTI Award, granted in January 2016, had no value assuming the three-year performance period from 2016-2018 had terminated and been valued as of
December 31, 2016. The actual number of LTI Awards issued will not be determined until the end of the respective 2015-2017 and the 2016-2018 performance periods.
|
46
AUDIT COMMITTEE REPORT
The Audit Committee reviews the Companys financial reporting process on behalf of the Board. The Companys management has the primary
responsibility for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public reporting process. Ernst & Young, the Companys independent auditor for 2016, was
responsible for expressing opinions on the conformity of the Companys audited financial statements with generally accepted accounting principles and on the effectiveness of the Companys internal control over financial reporting.
In this context, the Audit Committee has reviewed and discussed with management and Ernst & Young the audited financial statements for the year ended
December 31, 2016, and Ernst & Youngs evaluation of the Companys internal control over financial reporting. The Audit Committee has discussed with Ernst & Young the matters that are required to be discussed by
applicable auditing standards. Ernst & Young has provided to the Audit Committee the written disclosures and the letter required by applicable independence standards, and the Audit Committee has discussed with Ernst & Young the
firms independence. The Audit Committee has concluded that Ernst & Youngs provision of audit and
non-audit
services to the Company and its affiliates is compatible with Ernst &
Youngs independence.
In reliance on the review and discussions referred to above, the Audit Committee recommended to the Board the inclusion of the
Companys audited consolidated financial statements in its Annual Report on Form
10-K
for the fiscal year ended December 31, 2016, for filing with the SEC.
Audit Committee:
John E. Neal, Chair
Linda Walker Bynoe
Connie K. Duckworth
Gerald A. Spector
Stephen E. Sterrett
MATTERS FOR SHAREHOLDER VOTING
PROPOSAL 1
ELECTION OF TRUSTEES
Introduction
At the Annual Meeting, shareholders will be asked to elect twelve trustees to serve until the 2018 annual meeting and until their respective successors are
duly elected and qualified. Following the recommendation of the Corporate Governance Committee, the Companys Board of Trustees has nominated all of the Companys current trustees, John W. Alexander, Charles L. Atwood, Linda Walker Bynoe,
Connie K. Duckworth, Mary Kay Haben, Bradley A. Keywell, John E. Neal, David J. Neithercut, Mark S. Shapiro, Gerald A. Spector, Stephen E. Sterrett and Samuel Zell for election, with the exception of B. Joseph White who will not be standing for
re-election
as a result of his retirement from the Board. Biographies of each of our nominated trustees, which include a brief discussion of the specific experience, qualifications, attributes and skills that led to
the Boards conclusion that such individual should serve as a Trustee of the Company, are set forth above in
47
Governance of the Company Biographical Information and Qualifications of Trustees. The process undertaken by the Corporate Governance Committee in recommending qualified
trustee candidates is described above under Governance of the Company Trustee Nomination Procedures.
Independence of Trustees
Pursuant to the Companys Corporate Governance Guidelines, which require that a majority of our trustees be independent within the meaning of
the NYSE listing standards, the Board undertook a review of the independence of Trustees nominated for election at the upcoming annual meeting. The Board reviews the relationships and transactions, if any, during the past year between each trustee
or any member of his or her immediate family and the Company as necessary to comply with the definition of independence established by the NYSE. During the period covered by this Proxy Statement, for each trustee identified as independent below,
there were no transactions, relationships or arrangements not disclosed pursuant to Item 404(a) of Regulation
S-K
of the type that would need to be considered in connection with determining the independence of
such trustees under the applicable NYSE definition of independence.
As a result of this review, the Board affirmatively determined that all the Trustees
nominated for election at the Annual Meeting are independent of the Company and its management within the meaning of the NYSE listing standards, with the exception of its Chairman, Mr. Zell, and its Chief Executive Officer and President,
Mr. Neithercut.
General Information about the Trustees and Nominees
Our Declaration of Trust currently provides for the annual election of all trustees. All of the nominees are presently trustees, and each has consented to be
named in this Proxy Statement and to serve if elected.
Vote Required
A majority of the votes cast in person or by proxy at the meeting is required for the election of trustees in an uncontested election. A majority of the votes
means that the number of shares voted for a Trustees election exceeds fifty percent of the total number of votes cast with respect to his or her election. Although we know of no reason why any nominee would not be able to serve, if
any nominee should become unavailable for election, the persons named as proxies will vote your shares to approve the election of any substitute nominee proposed by the Board.
If any incumbent Trustee does not receive a majority of the votes
cast for his or her election, the Trustee is required to tender his or her resignation for the consideration of the Board. See Corporate Governance Trustee Resignation Policy above.
|
THE BOARD RECOMMENDS THAT YOU VOTE FOR
EACH OF THE TWELVE TRUSTEE NOMINEES.
|
48
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
The
Audit Committee has selected Ernst & Young LLP (Ernst & Young) as the independent auditor to perform the audit of our financial statements and our internal control over financial reporting for 2017. The Board recommends
that the shareholders ratify the Companys selection of Ernst & Young as our independent auditor. Representatives of Ernst & Young will be at the Annual Meeting and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
Fees
Fees billed to the Company by Ernst & Young for the years ended December 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Fees:
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
Audit fees (1)
|
|
|
|
|
|
$
|
1,877,178
|
|
|
|
|
|
|
$
|
1,632,407
|
|
|
|
|
|
Audit-related fees (2)
|
|
|
|
|
|
|
25,995
|
|
|
|
|
|
|
|
25,675
|
|
|
|
|
|
Tax compliance/preparation fees
(3)
|
|
|
|
|
|
|
301,370
|
|
|
|
|
|
|
|
222,010
|
|
|
|
|
|
Tax consulting fees (4)
|
|
|
|
|
|
|
240,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
$
|
2,445,508
|
|
|
|
|
|
|
$
|
1,880,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Audit fees for the audit of our annual financial statements and internal control over financial reporting, the review of our interim financial statements and for work on securities offerings and other filings with the
SEC, including comfort letters, consents and comment letters.
|
(2)
|
Fees for audit-related services include services associated with legally required employee benefit plan audits and subscriptions to online accounting and tax information services.
|
(3)
|
Tax compliance/preparation fees are incurred for the review or preparation of tax returns, claims for refunds and tax payment compliance.
|
(4)
|
Tax consulting fees relate primarily to tax planning advice incident to acquisitions, dispositions, developments, financings and similar issues.
|
Pre-Approval
Policy
The Companys Audit Committee has reviewed and approved the Companys engagement of Ernst & Young as its independent auditor, and the
incurrence of all of the fees described above, for 2016 and 2015 and has selected Ernst & Young as independent auditor for 2017. The Audit Committee has also adopted a
Pre-Approval
Policy for Audit
and
Non-Audit
Services (the
Pre-Approval
Policy) for all other services Ernst & Young may perform for the Company in 2017. The
Pre-Approval
Policy details with specificity the audit and permitted
non-audit
services that are authorized within each of the above-described categories of services and
provides for aggregate maximum dollar amounts for such
pre-approved
services. Any additional services not described or otherwise exceeding the maximum dollar amounts prescribed by the
Pre-Approval
Policy for 2017 will require the further advance review and approval of the Audit Committee.
49
Vote Required
The affirmative vote of holders of a majority of the votes cast in person or by proxy at the meeting is required to ratify the selection of Ernst &
Young. If this proposal is not approved, the selection of the independent auditor will be reconsidered by the Audit Committee and the Board. Because it is difficult and not cost effective to make any change in the independent auditor so far into the
year, the appointment of Ernst & Young would probably be continued for 2017 unless the Audit Committee or the Board finds additional good reasons for making an immediate change.
|
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG AS OUR INDEPENDENT AUDITOR FOR 2017.
|
PROPOSAL 3
APPROVAL OF EXECUTIVE COMPENSATION
Each
public company is generally required to include in its proxy statement a separate resolution subject to a
non-binding
shareholder vote to approve the compensation of the Companys named executive
officers, as disclosed in its proxy statement, not less frequently than once every three years. This is commonly known as a
Say-on-Pay
proposal or
resolution, and the Board currently intends for the Company to hold a
non-binding,
advisory Say on Pay vote every year.
In deciding how to vote on this proposal, the Board encourages you to read the Compensation Discussion and Analysis and Executive Compensation
sections above for a detailed description of our executive compensation philosophy and programs and the compensation decisions the Compensation Committee has made under those programs.
The Board recommends that shareholders vote for the following advisory resolution:
RESOLVED, that the compensation of the named executive officers, as disclosed in the Companys Proxy Statement pursuant to the
compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure, is hereby APPROVED.
Vote Required
Votes cast FOR this proposal
must exceed votes cast AGAINST it for the approval of this advisory resolution. Although the vote on this advisory proposal is
non-binding,
the Compensation Committee and the Board value the
opinion of shareholders and will take into account the outcome of the vote when considering future executive compensation decisions.
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THE BOARD RECOMMENDS THAT YOU VOTE FOR
THE ADVISORY APPROVAL OF OUR EXECUTIVE COMPENSATION.
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50
PROPOSAL 4
APPROVAL OF FREQUENCY OF VOTE ON EXECUTIVE COMPENSATION
In accordance with SEC rules, the Board is providing shareholders with an advisory vote on the frequency of future votes on our executive compensation.
Shareholders may indicate whether they prefer that we hold a
say-on-pay
vote every year, every two years, every three years, or they may abstain from this vote.
After careful consideration, the Board, on the recommendation of the Corporate Governance Committee, has determined that a
say-on-pay
vote every year is the best approach for the Company and our shareholders for a number of reasons, including, most importantly that it allows shareholders to provide timely, direct input on our
executive compensation philosophy, policies and practices as disclosed in the proxy statement each year.
Shareholders are not voting to approve or
disapprove the Boards recommendation. Instead, shareholders may indicate their preference regarding the frequency of future
say-on-pay
votes by selecting every
year, every two years or every three years. Shareholders that do not have a preference regarding the frequency of future
say-on-pay
votes may abstain from voting on the
proposal.
Vote Required
The option of every year,
every two years or every three years that receives the highest number of votes cast by shareholders will reflect the frequency for future
say-on-pay
votes that has been
selected by shareholders. Although the vote on this advisory proposal is
non-binding,
the Compensation Committee and the Board value the opinion of shareholders and will take into account the outcome of the
vote when considering the frequency of future votes on our executive compensation.
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THE BOARD RECOMMENDS THAT YOU VOTE FOR HOLDING
A
VOTE ON OUR EXECUTIVE COMPENSATION EVERY YEAR.
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51
PROPOSAL 5
SHAREHOLDER PROPOSAL TO ALLOW SHAREHOLDERS TO AMEND THE COMPANYS BYLAWS
Set forth below is a shareholder proposal submitted on behalf of Trowel Trades S&P 500 Index Fund, c/o Comerica Bank & Trust, National
Association, Trustee, at P.O. Box 75000, Detroit, Michigan 48275 (the shareholder proponent), the beneficial owner of 6,757 of the Companys common shares, along with the supporting statement of the shareholder proponent. The
shareholder proposal is required to be voted upon at the annual meeting only if properly presented at the annual meeting by or on behalf of the shareholder proponent. As explained below, the Board recommends that you vote AGAINST the
shareholder proposal.
RESOLUTION:
Be it resolved, that
the shareholders of Equity Residential (Company) recommend the board of directors take all steps necessary to allow shareholders to amend our bylaws by a vote of the majority of shares outstanding.
SUPPORTING STATEMENT:
The ability to amend our bylaws by a
vote of the majority of shares outstanding is a fundamental shareholder right, and one of the most effective tools shareholders have to hold Boards accountable.
At many companies, shareholders can pursue corporate governance reform through two types of shareholder proposals - recommendations to the board or through
binding bylaw amendments. Without the independent right to amend bylaws, introducing shareholder-friendly governance changes can be a lengthy process fraught with uncertainty.
Because many Real Estate Investment Trusts (REITs) - including the Company - are incorporated in Maryland, their shareholders do not have this right
guaranteed by statute. In Delaware, shareholders have this right by law (DGCL Sec. 109).
Our Company reserves the right to amend our bylaws for
the board of directors. However, multi-family REITs incorporated in other states (including Camden Property Trust,
Mid-America
Apartment Communities and Post Properties REIT) generally permit shareholders to
initiate bylaw amendments. Over the last two years, shareholders at Maryland-incorporated lodging REITs have supported proposals to extend the right to amend bylaws to shareholders with an average of 64.6% of votes cast in support.
We recommend shareholders vote FOR a recommendation that our Board allow shareholders to make binding bylaw amendments.
52
BOARD STATEMENT OPPOSING SHAREHOLDER PROPOSAL
Your Board and its Corporate Governance Committee recommend a vote
AGAINST
adoption of this shareholder proposal.
The Company believes in the importance of providing long-term shareholders with a meaningful voice in the operation of the Companys governance. At the
same time, the Board also believes in the importance of its responsibility to protect the Companys shareholders from special interests and counter-productive distractions to the core functioning of the Company and its Board.
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The proposal adds nothing to meaningfully improve the shareholders voice in governance matters.
SEC Rule
14a-8
already allows shareholders to propose bylaw amendments
or other governance changes and the Company has consistently implemented the shareholders will as expressed through votes on these proposals, as recently as 2015 when the Board adopted proxy access in response to the vote on a
14a-8
proposal and following thoughtful engagement with shareholders. The proponent is submitting a solution in search of a problem.
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Maryland law requires that the Companys business and affairs be managed under the direction of the Board. This proposal restricts the Board from carrying out its legal duties.
The Boards ability to
exercise its legal duties should not be fraught with the uncertainty of dealing with constant and potentially destabilizing bylaw amendment proposals that in an instant can bind the Company into a different way of functioning. Shareholders purchased
shares in the Company with the understanding and comfort that only the Board can amend the Bylaws. The proposal would serve primarily as a benefit for activists interested in disrupting the regular conduct of the Companys business to advance
their own agendas.
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A simple majority vote to amend the Companys Bylaws is not in the Companys best interest.
In many cases, corporations formed in Delaware and other states require a supermajority vote of
two-thirds
or more of the votes entitled to be cast on the matter for the shareholders to amend at least some of the provisions in the bylaws. In cases where state law requires the shareholders to have an ability to
directly amend bylaws, a supermajority vote offers reasonable protection to the Company and its shareholders as it is crucial that any proposed amendment to the bylaws be supported by a very significant margin of shareholders, or by the governing
board that was duly elected by, and owes legal duties to, the shareholders.
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Your Board believes its current approach to this issue is
appropriate and time-tested. It will continue further engagement with its shareholders on this issue, however, and give thoughtful consideration to whether a shareholder right to amend bylaws is appropriate for the Company. Regardless, the
Boards opinion is that the proponents submittal is not in the best interest of the Company or its shareholders, and therefore we urge you to vote
AGAINST
.
Vote Required
The affirmative vote of a majority of all
the votes cast in person or by proxy at the meeting is necessary to adopt the resolution in this proposal.
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THE BOARD RECOMMENDS THAT YOU VOTE
AGAINST
THE ADOPTION OF THIS SHAREHOLDER PROPOSAL
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53
INFORMATION ABOUT THE ANNUAL MEETING
Purpose of the Annual Meeting
Shareholders will vote on
the proposals presented at the Annual Meeting.
YOUR VOTE IS VERY IMPORTANT. Please vote your shares in advance of the meeting, using one of the methods described below.
Who Can Vote
You will be entitled to vote your shares
on each proposal if you held your shares as of the close of business on March 31, 2017 (the Record Date). Each of the shares outstanding on that date is entitled to one vote on each proposal. As of the Record Date, a total of
367,137,757 common shares were outstanding and entitled to vote.
We are making this proxy statement and our annual report available to shareholders
electronically via the Internet at www.proxyvote.com. On April 27, 2017, we began mailing to our shareholders a notice containing instructions on how to access this proxy statement and our annual report and how to vote online. If you received
that notice, you will not receive a printed copy of the proxy materials unless you request it by following the instructions for requesting such materials contained on the notice.
How to Vote
Your vote is important and we encourage you
to vote promptly. Internet and telephone voting are available 24 hours a day until 11:59 p.m. (Eastern Time) on June 14, 2017, and using either method you will be able to confirm that the vote of your shares has been properly recorded. You may
vote in the following ways:
By Internet.
You may vote your shares via the Internet at www.proxyvote.com using the
control number shown on your Notice Regarding the Availability of Proxy Materials (Notice), proxy card or voting instruction form (VIF). If you vote by Internet, you do not need to return your proxy card or VIF.
By Telephone.
You may vote your shares by calling
1-800-690-6903
and using the control number shown on your Notice Regarding the Availability of Proxy Materials, proxy card or VIF. If you vote by telephone, you do not need to return your proxy card or
VIF.
By Mail.
If you are a shareholder of record and received a paper set of materials, you may vote by returning a
completed and signed proxy card by mail. If you are a beneficial owner with shares held by a broker, you may vote by returning a completed and signed VIF.
At the Annual Meeting.
If you are a shareholder of record and attend the annual meeting in person, you may use a ballot
provided at the meeting to vote. If you are a beneficial owner, you will need to have a legal proxy from your broker in order to vote by ballot at the meeting.
Quorum for the Meeting
The presence at the meeting in
person or by proxy of the holders of a majority of the common shares outstanding on the Record Date will constitute a quorum permitting business to be conducted at the meeting. If you have returned valid proxy instructions or attend the meeting and
54
vote in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain from voting on any or all matters introduced at the meeting.
Beneficial Ownership
If your shares are registered
directly in your name with the Companys transfer agent, Computershare, Inc., you are the shareholder of record of those shares. A Notice of Internet Availability of Proxy Materials with instructions on how to vote your shares has
been provided directly to you by the Company. If your shares are held in street name by a broker, you are considered the beneficial owner of those shares. You will receive instructions from them on how to vote your shares.
Other than for Proposal 2, brokers do not have the ability to vote on the proposals unless they have received voting instructions from you. Accordingly, if you do not provide your broker with voting instructions, your shares for Proposals 1, 3, 4
and 5 will not be voted.
Revoking/Changing Your Proxy
You may change or revoke your proxy at any time before the meeting by timely delivery of a properly executed, later-dated proxy (including an Internet or
phone vote) or by voting in person at the Annual Meeting. The powers of the proxy holders with respect to your shares will be suspended if you attend the meeting in person and so request, but attendance at the meeting will not by itself revoke a
previously granted proxy.
Managing the Number of Proxy Statements and Annual Reports
To reduce our printing costs and postage fees, the Company adopted a procedure called householding which provides that shareholders who have the
same address and last name will receive only one Notice, and if paper copies have been requested, only one copy of this Proxy Statement and the Annual Report. If you no longer wish to receive hard copies, or would prefer to receive separate copies
of the Notice, Proxy Statement or Annual Report, please contact Broadridge Financial Solutions, Inc. at
1-800-542-1061
or in
writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717.
Results of the Vote
Voting results of the Annual Meeting will be disclosed on a Form
8-K
filed with the SEC within four business days
after the Annual Meeting, which will be accessible on the Companys website at www.equityapartments.com in the investor section under SEC Filings.
55
Votes Required and Effect of Abstentions and Broker
Non-Votes
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Matter
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Required
Vote
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Impact of Abstentions or
Broker
Non-Votes
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1. Election of Trustees
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Majority of votes cast with respect to a nominee must be cast FOR that nominee.
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Not counted as votes cast; no impact on outcome.
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2. Ratification of Ernst & Young LLP as Independent Auditor
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Approval by a majority of the votes making up the quorum.
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Not counted as votes cast; no impact on outcome.
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3. Advisory Approval of Executive Compensation
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Votes cast FOR the proposal must exceed votes cast AGAINST it.
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Not counted as votes cast; no impact on outcome.
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4. Advisory Approval on Frequency of Vote on Executive Compensation
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Plurality of votes cast with respect to a frequency must be cast FOR that frequency. This means that the choice of frequency that receives the greatest number
of votes is considered the preference of our shareholders.
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Not counted as votes cast; no impact on outcome.
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5. Shareholder Proposal to Allow Shareholders to Amend the Companys Bylaws
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Approval by a majority of the votes cast.
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Not counted as votes cast; no impact on outcome.
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Proxy Solicitation
The
cost of this solicitation of proxies will be borne by the Company. The Company has hired MacKenzie Partners, Inc. to assist in distributing and soliciting proxies and will pay approximately $17,500, plus expenses for these services.
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 meeting for action, it is intended that the persons named in the proxies will vote upon such matters in accordance with their discretion.
MISCELLANEOUS
Contacting
the Board of Trustees
The Board welcomes your questions and comments. If you would like to communicate with our Board or our Lead Trustee, or if you
have a concern related to the Companys business ethics or conduct, financial statements, accounting practices or internal controls, you may submit your correspondence to Equity Residential, Two North Riverside Plaza, Suite 400, Chicago,
Illinois 60606, Attn: Corporate Secretary. All communications will be forwarded to our Lead Trustee.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our trustees, executive officers and beneficial owners of more
than 10% of the Companys outstanding common shares to file reports of ownership and changes in ownership with the SEC. We believe that no such person failed to file any such report or to report any transaction on a timely basis during 2016.
56
Shareholder Proposals for the 2017 Annual Meeting
Shareholder proposals submitted pursuant to Exchange Act Rule
14a-8
for inclusion in the Companys proxy
statement and form of proxy for the 2018 Annual Meeting must be received by the Company by December 28, 2017. Such a proposal must also comply with the requirements as to form and substance established by the SEC for such a proposal to be
included in the proxy statement and form of proxy.
In accordance with our Bylaws as currently in effect, for a shareholder to nominate a trustee or for a
proposal of a shareholder to be presented at the Companys 2018 Annual Meeting, other than a shareholder proposal intended to be included in our proxy statement and submitted pursuant to Rule
14a-8
of the
Exchange Act, shareholder proposals must be received at our principal executive offices no earlier than the close of business on November 28, 2017 and no later than the close of business on December 28, 2017. Proposals should be mailed to
Equity Residential, Two North Riverside Plaza, Suite 400, Chicago, Illinois 60606, Attn: Corporate Secretary. Such proposals must also include the same information concerning proposals for shareholder nominees as required under Article II,
Section 13 of the Bylaws of the Company. See Governance of the Company Trustee Nomination Procedures.
2016 Annual Report
Additional copies of our 2017 Proxy Statement, 2016 Annual Report and Form
10-K
for the year ended
December 31, 2016, as filed with the SEC, may be obtained without charge by contacting Equity Residential Investor Relations, at Two North Riverside Plaza, Suite 400, Chicago, Illinois 60606 (toll free number:
1-888-879-6356;
e-mail:
investorrelations@eqr.com) or by accessing SEC Filings in
the investor section of the Companys website at www.equityapartments.com.
By Order of the Board of Trustees
Bruce C. Strohm
Executive
Vice President, General Counsel and Corporate Secretary
Chicago, Illinois
April 27, 2017
57
SUPPLEMENTAL APPENDIX
Unlevered IRR
.
The Unlevered Internal Rate of Return (IRR) on sold properties is the compound
annual rate of return calculated by the Company based on the timing and amount of: (i) the gross purchase price of the property plus any direct acquisition costs incurred by the Company; (ii) total revenues earned during the Companys
ownership period; (iii) total direct property operating expenses (including real estate taxes and insurance) incurred during the Companys ownership period; (iv) capital expenditures incurred during the Companys ownership
period; and (v) the gross sales price of the property net of selling costs. Each of the items (i) through (v) is calculated in accordance with generally accepted accounting principles (GAAP). The calculation of the Unlevered
IRR does not include an adjustment for the Companys general and administrative expense, interest expense (including loan assumption costs and other loan-related costs) or property management expense.
Therefore, the Unlevered IRR is not
a substitute for net income as a measure of our performance. The Company believes that the Unlevered IRR achieved during the period a property is owned by the Company is useful because it is one indication of the gross value created by the
Companys acquisition, development, rehab, management and ultimate sale of a property, before the impact of Company overhead. The Unlevered IRR achieved on the properties sold by the Company in 2016 should not be viewed as an indication of the
gross value created with respect to other properties owned by the Company, and the Company does not represent that it will achieve similar Unlevered IRRs upon the disposition of other properties. The weighted average Unlevered IRR for sold
properties is weighted based on all cash flows over the investment period for each respective property, including net sales proceeds.
Same Store
Net Operating Income
. For same store net operating income information, see pages 47 and 49 of the Companys Annual Report on Form
10-K
for the year ended December 31,
2016.
Normalized FFO
. Normalized FFO starts with FFO as defined by NAREIT and eliminates certain items that by their
nature are not comparable from period to period or that tend to obscure the Companys actual operating performance. For reconciliations of net income to FFO and Normalized FFO referenced in the CD&A, see page 66 of the Companys Annual
Report on Form
10-K
for the year ended December 31, 2016. For reconciliations of earnings per share (EPS) to FFO per share and Normalized FFO per share referenced in the CD&A, see
Reconciliation of Earnings Per Share below.
Reconciliation of Earnings Per Share
. The following table shows the reconciliation
of EPS computed in accordance with GAAP to FFO per share and Normalized FFO per share (as shown on page 22) for the year ended December 31, 2016. All data shown is on a per share diluted basis.
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Description
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Year Ended December 31, 2016
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Earnings per share
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$11.68
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Depreciation expense
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1.83
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Net gain on sales
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(10.57)
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FFO per share
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$2.94
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Asset impairment and valuation allowances
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Property acquisition costs and
write-off
of pursuit costs
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0.02
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Debt extinguishment (gains) losses,
including prepayment penalties,
preferred share redemptions and
non-cash
convertible debt discounts
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0.31
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(Gains) losses on sales of
non-operating
assets, net of
income and other tax expense (benefit)
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(0.19)
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Other miscellaneous
non-comparable
items
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0.01
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Normalized FFO per share
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$3.09
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58
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EQUITY RESIDENTIAL
TWO NORTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
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VOTE BY INTERNET -
www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off
date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
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ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
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If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up
for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
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VOTE BY PHONE - 1-800-690-6903
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Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the
instructions.
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VOTE BY MAIL
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Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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E18592-P86554 KEEP THIS PORTION FOR YOUR
RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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EQUITY RESIDENTIAL
The Board of Trustees recommends you vote FOR all Trustee Nominees:
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For
All
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Withhold
All
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For All
Except
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To withhold authority
to vote for any individual nominee(s), mark For All Except and write the number(s) of the nominee(s) on the line below.
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1.
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Election of Trustees
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☐
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☐
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☐
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Nominees:
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01) John W. Alexander
02)
Charles L. Atwood
03) Linda Walker Bynoe
04) Connie K. Duckworth
05) Mary Kay Haben
06) Bradley A. Keywell
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07) John E. Neal
08) David J. Neithercut
09) Mark S. Shapiro
10) Gerald A. Spector
11) Stephen E. Sterrett
12) Samuel Zell
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The Board of Trustees recommends
you vote AGAINST Proposal 5:
5. Shareholder proposal to allow shareholders to amend the Companys Bylaws.
NOTE:
In their discretion, the Representatives are authorized to vote upon such
other matters as may properly come before the meeting.
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For
☐
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Against
☐
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Abstain
☐
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The Board of Trustees recommends you vote
FOR Proposals 2 and 3:
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For
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Against
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Abstain
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2.
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Ratification of the selection of Ernst & Young LLP as the Companys independent auditor for 2017.
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☐
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☐
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☐
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3.
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Approve Executive Compensation.
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☐
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☐
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☐
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The Board of Trustees recommends you vote
1 year on Proposal 4:
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1 Year
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2 Years
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3 Years
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Abstain
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4.
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Advisory vote on the frequency of shareholder votes on Executive Compensation.
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☐
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☐
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☐
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☐
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For address change/comments, mark here. (see
reverse for instructions)
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☐
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Please indicate if you plan to attend this
meeting.
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☐
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☐
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Yes
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No
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give
full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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V.1.1
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
E18593-P86554
EQUITY RESIDENTIAL
Annual Meeting of Shareholders - June 15, 2017
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned shareholder(s) of Equity Residential, a Maryland real estate investment trust (the Company),
hereby appoint(s) DAVID J. NEITHERCUT and BRUCE C. STROHM, or either of them (the Representatives), with full power of substitution, as proxies for the undersigned to attend the Annual Meeting of Shareholders of the Company, to vote all
common shares of the Company which the undersigned is entitled to vote at the Annual Meeting and otherwise represent the undersigned with all powers possessed by the undersigned if personally present at the Annual Meeting, to be held at 8:00 a.m.,
local time, on June 15, 2017, at Two North Riverside Plaza, Suite 500, Chicago, Illinois 60606, and any adjournment or postponement thereof. The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting of Shareholders and of
the accompanying Proxy Statement and revokes any proxy heretofore given with respect to such common shares. If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder,
the shares will be voted accordingly.
If not otherwise specified, the shares represented by this card will be voted FOR all Nominees for Trustee, FOR Proposals 2 and 3, ONE YEAR on Proposal 4, and
AGAINST Proposal 5, and in the discretion of the Representatives in any other matter that may properly come before the meeting or any adjournment or postponement thereof.
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Address Changes/Comments:
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
V.1.1
Equity Residential (NYSE:EQR)
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