O Realty Income Corporation

Check the appropriate box:

 

 

April 1, 2020

Dear Stockholder:

You are cordially invited to attend our 2020 Annual Meeting of Stockholders (the “Annual Meeting”) to be held at 9:00 a.m., Pacific Time on May 12, 2020. Due to the emerging public health impact of the coronavirus outbreak (COVID-19), and to support the health and well-being of our partners and stockholders, this year’s Annual Meeting will be a completely virtual meeting of stockholders, conducted via live audio webcast. The virtual format provides the opportunity for participation by a broader group of our stockholders and enables stockholders to participate fully, and equally, from any location around the world, at no cost. You can attend the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/realty2020 by using the control number which appears on your Proxy Materials, proxy card (printed in the box and marked by the arrow) and the instructions that accompanied your Proxy Materials. You will have the ability to submit questions in advance of and real-time during the Annual Meeting via the meeting website. The business that will be conducted at the Annual Meeting is described in the Notice of the 2020 Annual Meeting of Stockholders and Proxy Statement.

Our company completed another year of strong operating performance in 2019, delivering favorable risk-adjusted returns for our stockholders in a year that marked the 50th anniversary of our company’s founding, the 25th anniversary of our public listing, and our international expansion through completing property acquisitions in the United Kingdom. Stockholders who owned our stock for the duration of 2019 realized total shareholder return (“TSR”) of 21.3% assuming reinvestment of dividends. During 2019, we invested selectively in high-quality real estate, funded our investment activity with favorably priced permanent and long-term capital, and managed our portfolio to maximize value. We will seek to continue building upon our strong foundation to deliver favorable risk-adjusted returns for our stockholders throughout our company’s next chapter.

As The Monthly Dividend Company^®, we remain committed to providing our stockholders with dependable monthly dividends that increase over time. During 2019, we paid twelve monthly dividends and increased the dividend per share by 3.0% over 2018. I would like to thank our team for their continued hard work and dedication, as well as our Board of Directors for their continued support and guidance. We are excited about the current position of the company and remain committed to continuing to responsibly manage your company as prudent stewards of your capital.

We encourage you to review the information contained in the Proxy Statement. It is meant to provide an overview of the company’s achievements during the year, including information on the company’s compensation program and enhancements to our corporate governance practices. After your review, we hope that you will vote at the meeting in accordance with the Board of Directors’ recommendations.

Your vote is important to us and we appreciate your continued support of our company.

Sincerely,

 

NOTICE IS HEREBY GIVEN that the 2020 Annual Meeting of Stockholders (the “Annual Meeting”) of Realty Income Corporation, a Maryland corporation (the “company”), will be held as follows:

RECORD DATE: You may vote if you were a holder of record of shares of our common stock, par value $0.01 per share, at the close of business on March 12, 2020.

The Proxy Statement following this Notice describes these matters in detail. We have not received notice of any other proposals to be presented at the Annual Meeting. During the Annual Meeting, management will report on the current activities of the company and comment on its future plans. A discussion period is planned so that stockholders will have an opportunity to ask questions and make appropriate comments. All presentation materials shared at the Annual Meeting will be made available on the company’s website at www.realtyincome.com/investors/financial-information/annual-reports-and-proxy.

PROXY VOTING: Your vote is important. Whether or not you plan to participate in our virtual Annual Meeting, we urge you to submit your proxy as soon as possible to ensure your shares are represented and voted at our Annual Meeting. You may authorize a proxy to vote your shares by telephone, via the Internet, or – if you have received and/or requested paper copies of our Proxy Materials by mail – by signing, dating and returning the proxy card in the envelope provided. If you participate in our virtual Annual Meeting, you may, if you wish, vote your shares (or withdraw your proxy) at www.virtualshareholdermeeting.com/realty2020.

No person is authorized to make any representation with respect to the matters described in this Proxy Statement other than those contained herein and, if given or made, such information or representation must not be relied upon as having been authorized by us or any other person.

You are encouraged to read this Proxy Statement in its entirety before voting or authorizing a proxy to vote on your behalf.

By Order of the Board of Directors,

 

Michael R. Pfeiffer
Executive Vice President, Chief Administrative Officer, General Counsel and Secretary
April 1, 2020

The Board of Directors (or, the “Board”) of Realty Income Corporation, a Maryland corporation (the “company”), is soliciting proxies for the 2020 Annual Meeting of Stockholders (the “Annual Meeting”) and any postponement or adjournment of the Annual Meeting. This Proxy Summary provides an overview of the proposals to be considered and voted on at the Annual Meeting and information contained in the Proxy Statement, but does not contain all of the information that should be considered before voting. We encourage you to read the Proxy Statement in its entirety before voting.

On or about April 1, 2020, we will mail or e-mail a copy of our Notice of 2020 Annual Meeting of Stockholders, Proxy Statement, proxy card, and 2019 Annual Report (collectively “Proxy Materials”) to our stockholders according to their previously indicated preference. Some of our stockholders will be mailed a Notice of Availability of Proxy Materials, which contains instructions on how to request and receive a paper or e-mailed copy of our Notice of 2020 Annual Meeting of Stockholders, Proxy Statement and 2019 Annual Report, and how to view these materials online. We encourage you to vote by telephone, over the Internet or by mail by completing your proxy card, even if you plan to participate in the virtual Annual Meeting. All methods of correspondence will provide stockholders with instructions on how to vote or authorize a proxy to vote using any of the following methods:

 

Beneficial Stockholders: If your shares of common stock are held by a bank, broker or other holder of record, please follow the instructions you receive from your bank, broker or other nominee on how to vote your shares of common stock at our Annual Meeting. Since a beneficial owner is not the stockholder of record, you may not vote these shares online at our Annual Meeting unless you obtain a “legal proxy” from the bank, broker or other holder of record that holds your shares, giving you the right to vote the shares at the Annual Meeting.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on May 12, 2020: This Proxy Statement and our 2019 Annual Report are available on our website at www.realtyincome.com/investors/financial-information/annual-reports-and-proxy. You can also view these materials at www.proxyvote.com prior to the day of the virtual Annual Meeting or at www.virtualshareholdermeeting.com/realty2020 on the day of and during the virtual Annual Meeting by using the control number that is provided to you either on your proxy card, in your e-mailed Proxy Materials, or on your Notice of Availability of Proxy Materials. You are encouraged to access and review all of the information contained in the Proxy Materials before voting.

Due to the emerging public heath impact of the coronavirus outbreak (COVID-19), and to support the health and well-being of our partners and stockholders, the Board has decided to hold a virtual Annual Meeting this year. The Board believes that the virtual format for the Annual Meeting will provide the opportunity for participation by a broader group of our stockholders, while reducing the costs associated with planning, holding and arranging logistics for in-person meeting proceedings. The virtual meeting format enables stockholders to participate fully, and equally, from any location around the world, at little to no cost. It also reduces the environmental impact of our Annual Meeting. We designed the format of our Annual Meeting to ensure that our stockholders

who attend our Annual Meeting will be afforded the same rights and opportunities to participate as they would at an in-person meeting and to enhance stockholder access, participation and communication through online tools. Our directors will participate in the virtual Annual Meeting.

Date and Time: The Annual Meeting will be held “virtually” through a live audio webcast on Tuesday, May 12, 2020, at 9:00 a.m. Pacific Time. There will be no physical meeting location. The meeting will only be conducted via an audio webcast.

Access to the Audio Webcast of the Annual Meeting: The live audio webcast of the Annual Meeting will begin promptly at 9:00 a.m. Pacific Time. Online access to the audio webcast will open approximately thirty minutes prior to the start of the Annual Meeting to allow time for you to log in and test the computer audio system. We encourage our stockholders to access the meeting prior to the start time.

Log in Instructions: To attend the virtual Annual Meeting, log in at www.virtualshareholdermeeting.com/realty2020. Stockholders will need their unique control number which appears on the Notice (printed in the box and marked by the arrow) and the instructions that accompanied the Proxy Materials. In the event that you do not have a control number, please contact your broker, bank, or other nominee as soon as possible and no later than Tuesday, May 5, 2020, so that you can be provided with a control number and gain access to the meeting.

Submitting Questions prior to and at the virtual Annual Meeting: An online pre-meeting forum will be available to our stockholders at www.proxyvote.com approximately two weeks prior to the day of the Annual Meeting. By accessing this online forum, our stockholders will be able to submit questions in writing in advance of the day of the Annual Meeting, vote, view the Annual Meeting’s Rules of Conduct, and obtain copies of Proxy Materials and our annual report. Stockholders may also submit questions in writing on the day of or during the Annual Meeting at www.virtualshareholdermeeting.com/realty2020. Stockholders will need their unique control number which appears on their Notice, the proxy card (printed in the box and marked by the arrow) and the instructions that accompanied the Proxy Materials.

As part of the Annual Meeting, we will hold a live Q&A session, during which we intend to answer questions submitted before or during the meeting in accordance with the Annual Meeting’s Rules of Conduct that are pertinent to the Company and the meeting matters, as time permits. Answers to any such questions that are not addressed during the meeting will be published following the meeting on the Company’s website at www.realtyincome.com under the “Investors” link. Questions and answers will be grouped by topic and substantially similar questions will be grouped and answered once. In order to promote fairness, efficient use of the Company’s resources and in order to ensure all stockholders are responded to, we will respond to up to three questions from a single stockholder.

The Annual Meeting’s Rules of Conduct will be posted on www.proxyvote.com approximately two weeks prior to the day of the Annual Meeting.

Technical Assistance: Beginning 30 minutes prior to the start of and during the virtual Annual Meeting, we will have a support team ready to assist stockholders with any technical difficulties they may have accessing or hearing the virtual meeting.

If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, you should call our support team at 800-586-1548 (US Domestic Toll Free); 303-562-9288 (International).

Voting shares prior to and at the virtual Annual Meeting: Stockholders may vote their shares at www.proxyvote.com prior to the day of the virtual Annual Meeting or at www.virtualshareholdermeeting.com/realty2020 on the day of and during the virtual Annual Meeting. If your shares of common stock are held by a bank, broker or other holder of record, you may not vote these shares online at our Annual Meeting unless you obtain a “legal proxy” from the bank, broker or other holder of record that holds your shares, giving you the right to vote the shares at the Annual Meeting.

Availability of live webcast to team members and other constituents: The live audio webcast will be available to not only our stockholders, but also our team members and other constituents.

We achieved another year of positive earnings growth in 2019 as measured by Adjusted Funds from Operations (AFFO) per share that allowed us to continue to pay dependable monthly dividends that increase over time.

 

Our focus on providing dependable monthly dividends that increase over time helps drive strong total shareholder return (“TSR”) performance.

 

The majority of the compensation awarded under the programs is at-risk. Approximately 71% of our CEO’s total target direct compensation for the 2019 performance year consisted of compensation that was at-risk based on the achievement of certain performance metrics. Salary and time-based equity awards made up the remaining 29% of our CEO’s compensation.

 

As the Monthly Dividend Company^®, we strive to pay dependable and growing monthly dividends for the benefit of our stockholders. Our diversified portfolio of actively managed commercial properties under long-term net lease agreements seeks to produce consistent and predictable income. We believe this also benefits other stakeholders, including employees, clients, tenants, lenders, and the communities in which we operate.

Over time, we intend to grow our earnings and dividends by expanding existing operations and entering new businesses without materially altering the company’s risk profile. Our international expansion is an example of our deliberate approach, and other growth initiatives remain under active consideration. Our goal remains to acquire high-quality real estate with tenants that already are or could become industry leaders, both in the U.S. and abroad.

We are focused on delivering long-term growth across market cycles and are therefore highly selective in the transactions we pursue, typically buying less than 10% of acquisition opportunities sourced. Our internal team dedicated to sourcing such opportunities has long-standing relationships with tenants, owners/developers, brokers and advisers and is regularly seeking to form new relationships. We research and analyze all potential transactions to remain focused on buying the right properties with the right tenants, and we are dedicated to continuing to monitor the health of our tenants and locations post-acquisition.

As a result, we also seek to create value through active portfolio and asset management, and seek to maximize returns through a combination of re-leasing, development, or sale. Our long-term relationships and outreach with tenants and industry experts help us remain well-informed on current and emerging trends.

Our size, scale, and cost of capital are meaningful competitive advantages that differentiate us. We also continue to invest heavily in our technological infrastructure to increase this differentiation, including predictive analytics.

Our goal is to continue managing the company in a manner that supports sustainable, long-term value creation for stockholders. The Board of Directors frequently reviews and discusses the company’s strategy as part of regularly scheduled Board meetings. The discussions allow the Board of Directors to assess further potential opportunities and threats to the business and properly position the company to continue to perform in the future. The company’s named executive officers and additional members of management, including the company’s in-house research and strategy departments, participate in the discussions on topics such as e-commerce and other disruptive technologies, changing demographics, the macroeconomic and political landscape, and their implications for our company. From time to time, experts on various topics are invited to the discussions to challenge thinking and invite healthy discourse at the meetings. The company also supports management’s and directors’ participation at various conferences and speaking engagements in order to introduce new topics and

materials for discussion and further broaden long-term views on the business. We will continue to incorporate similar strategic reviews in our Board of Director meetings and strive to stay in front of emerging trends by making adjustments to our strategy as needed.

We remain committed to managing the company for the benefit of our stockholders and maintaining good corporate governance practices. In 2019 and in early 2020, we further enhanced our corporate governance practices by:

We amended and restated our Bylaws in February 2020 to enhance our stockholders' power to propose amendments to our Bylaws, including by removing the previous requirement that stockholders meet certain ownership thresholds and other requirements in order to be eligible to submit such a proposal. As a result, stockholders may amend our Bylaws by the affirmative vote of a majority of all votes entitled to be cast on the matter pursuant to any proposal properly submitted for approval at a meeting of stockholders, subject to applicable notice requirements.

In addition to these enhancements, we continue to maintain the following corporate governance practices to enhance the company’s reputation for integrity and serving our stockholders responsibly:

The Board of Directors has nominated the following ten current directors, identified below, for re-election at the Annual Meeting, each to serve for a one-year term expiring at our annual meeting of stockholders in 2021, and until their respective successors are duly elected and qualify. The information presented below highlights each director nominee’s specific experience, qualifications, attributes, and skills that led our Board of Directors to the conclusion that he or she should serve as a director. We believe that all of our director nominees have a reputation for integrity, honesty, and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to Realty Income and our Board of Directors. We also value the additional perspective that comes from serving on other companies’ boards of directors and board committees. We continue to review the composition of the Board of Directors in an effort to assemble a group that can best perpetuate the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in various areas. Since our last annual meeting of the stockholders in 2019, we added a new director, Christie Kelly, to the Board of Directors. We believe this new addition to our Board of Directors has expanded our Board of Director’s diversity of composition, thought and experience, and has provided our Board of Directors with a fresh perspective.

Our Board has three standing committees that perform certain delegated functions of the Board: the Audit Committee, the Compensation Committee, and the Nominating/Corporate Governance Committee. Each committee is composed entirely of independent directors within the meaning of our director independence standards, which reflect the NYSE director independence standards and the audit committee requirements of the SEC.

Each committee operates under a written charter, all of which were reviewed by their respective committees during 2019. Our Nominating/Corporate Governance Committee updated its charter in February 2020 and our Corporate Governance Guidelines in February 2019. Our Compensation Committee updated its charter in February 2020. Our Board may, from time to time, establish certain other committees to facilitate oversight over the management of the company. The charters of each of our standing committees are available on our company’s website: www.realtyincome.com/investors/corporate-governance/board-committees.

We believe a company’s reputation for integrity and serving its stockholders responsibly is of critical importance. We are committed to managing the company for the benefit of our stockholders and are focused on maintaining good corporate governance.

Our company has adopted Corporate Governance Guidelines, which were updated in February 2019, that promote the functioning of the Board of Directors and its committees and set forth expectations as to how the Board of Directors should operate. The guidelines include information about the composition of the Board of Directors, orientation and continuing education, director compensation, Board meetings, Board committees, management succession, evaluation and compensation of key executive officers (which includes all named executive officers), expectations of directors, and information regarding the annual performance evaluation of the Board of Directors. A current copy is available on our company’s website at www.realtyincome.com/investors/corporate-governance.

The requirement to repay the incentive compensation that is recoverable under this policy shall only exist if the Board of Directors has actively taken steps to evaluate restating the company’s financial statements or its operating results, or recalculating other associated metrics prior to the end of the fifth year following the year in question. The company will not be bound by the three-year recoupment period or this five-year limitation in cases involving fraud or intentional misconduct. As applicable SEC regulations are adopted, we will reassess our clawback policy and implement appropriate changes to ensure that our policy is fully compliant with SEC regulations.

We put great effort into cultivating an inclusive company culture. We are one team, and together we are committed to a culture that provides an engaging work environment and encourages respect, humility, transparency, and integrity. Regular open communication is central to how we work, and our employees take pride in our over 50-year history of providing monthly dividends to our stockholders. We seek to hire and retain talented employees with diverse backgrounds and perspectives, and work to provide an environment where capable team members have fulfilling careers in the real estate industry. We invest in our employees’ development and training, providing access to online learning, a mentorship program, and a leadership development program.

During 2019, we continued to engage and interact with our stockholders through various means of communication, including in-person meetings, conferences, phone calls and emails. We believe engaging with our stockholders on an ongoing basis is important to understand what is important to them and ensure best practices.

Our outreach efforts for the 2020 proxy season included (i) reaching out to and (ii) holding engagement calls with the governance teams and portfolio management teams of our stockholders representing approximately 53% and 34% of our outstanding shares of common stock as of September 30, 2019, respectively. In addition to our internal engagement team, our Board’s Non-Executive Independent Chairman, Michael D. McKee, participated, which provided stockholders direct access to the Board of Directors. During our conversations with stockholders, we discussed various topics, including:

We report the details of our conversations and communication with stockholders to our Nominating/Corporate Governance Committee, Compensation Committee, and Board of Directors. This dialogue allows our Directors to hear what is most important to our stockholders and share perspectives on our compensation and governance processes. The Board of Directors considers the input provided by our stockholders and our advisors as it reviews and considers enhancements to its processes and disclosures.

While we believe that stockholders have been satisfied with the company’s current programs, the Board of Directors considers stockholder feedback and responds in the best interests of the company. As a direct result of stockholder engagement efforts, the Board of Directors has taken the following actions:

In 2019, we added Christie Kelly to our Board of Directors to continue refreshment of the Board.

We are committed to conducting our business according to the highest ethical standards. We are dedicated to operating our business in an environmentally conscious manner and upholding our corporate responsibilities as a public company for the benefit of our stakeholders - our stockholders, employees, tenants and community.

In recent years, our ESG efforts have quickly evolved from commitments to action. We continue to focus on how best to institutionalize efforts for a lasting and positive impact. We strive to be a leader in the net lease industry in ESG initiatives.

We believe that our commitment to corporate responsibility, which encompasses ESG principles, is critical to our performance and long-term success, and that we all have a shared responsibility to our community and the planet. That responsibility starts with our workforce and is demonstrated through our commitment to sound governance, our ethical operating behaviors and responsible practices. The Nominating/Corporate Governance Committee of our Board of Directors has direct oversight of ESG matters.

In 2019, we approved resources needed to advance our sustainability agenda, including appointing a new dedicated officer to the sustainability position. We envision advancements in the coming years as we develop a strategy, by and on behalf of our internal and external stakeholders, while engaging all levels of our organization in the process.

Relationships with our stakeholders are key to our success. Additionally, our corporate partners help us achieve our mission. Accordingly, we assess ways in which we can generate and sustain value for all stakeholders, which generates long-term value for our stockholders. We believe our dedication to corporate responsibility will foster our ability to grow in a sustainable manner.

We are committed to providing a positive and engaging work environment for our employees and taking an active role in the betterment of the communities in which our employees live and work. Our employees are awarded compensation that is in line with those of our peers and competitors, including generous health and welfare benefits (medical, dental, vision, life insurance, long-term disability, employee assistance program, flexible spending program, banking services) for all employees and their families, participation in a 401(k) plan with a matching contribution from the company, restricted stock awards based on company and individual performance, competitive paid time-off benefits, a wellness program, continued education and development opportunities, up to 10 weeks of paid maternity leave, up to 6 weeks paid parenting leave (combined maternity and parenting leave equals up to 16 weeks), up to 8 weeks of disability leave, and an infant-at-work program for new parents to support parents returning to the workplace and encourage gender equity. We also have a long-standing commitment to be an equal opportunity employer and adhere to all Equal Employer Opportunity Policy guidelines.

We believe that giving back to our community is an extension of our mission to improve the lives of our stockholders, our employees, and their families. The company and its employees have taken an active role in supporting communities through civic involvement with non-profit organizations and corporate donations. Our non-profit activities resulted in over 900 company-sponsored employee volunteer hours in 2019, principally through our partnership with San Diego Habitat for Humanity. We are proud of the efforts we have made to date and look forward to continuing to strengthen our impact as part of the successful operations of The Monthly Dividend Company^®.

In 2019, we focused on advancing our sustainability agenda, including creating a Sustainability Department. As a member of the National Association of Real Estate Investment Trusts (Nareit) Real Estate Sustainability Council, we believe we are able to leverage best practices and advance our efforts in this area.

Director qualifications are determined by what the Nominating/Corporate Governance Committee believes to be the essential competencies required to effectively serve on the Board of Directors. The Nominating/Corporate Governance Committee seeks to include on our Board of Directors a complementary mix of professionals with the following qualities, skills, and attributes:

Our Corporate Governance Guidelines set forth the process by which our Nominating/Corporate Governance Committee identifies and evaluates nominees for our Board of Directors. The Nominating/Corporate Governance Committee first evaluates the current members of our Board of Directors to identify nominees for directors. Current members who are willing to continue service and who have qualifications and skills that are generally consistent with the Nominating/Corporate Governance Committee’s criteria for Board of Directors service are generally re-nominated.

As to new candidates, the Nominating/Corporate Governance Committee will generally poll members of our Board of Directors and members of executive management for their recommendations. The Nominating/Corporate Governance Committee has discretion to retain a search firm to assist with identifying new candidates for membership on our Board of Directors if deemed appropriate. An initial slate of candidates will be presented to the Chair of the Nominating/Corporate Governance Committee, who will then make an initial determination as to the qualification and fit of each candidate. Final candidates will be interviewed by one or more members of the Nominating/Corporate Governance Committee and other directors. The Nominating/Corporate Governance Committee will then approve final director candidates and, after review and deliberation of all feedback and data, will make its recommendation to our Board of Directors. Recommendations received from stockholders are subject to the same criteria as candidates nominated by the Nominating/Corporate Governance Committee and will be considered accordingly.

Our Board of Directors remains committed to active board refreshment to ensure optimal board structure, composition and the exercise of sound business judgment in discharging the Board’s responsibilities in accordance with evolving standards and practices. We seek to add directors who contribute to diversity of background, expertise, perspective, age, gender and ethnicity. The Nominating/Corporate Governance Committee aspires to obtain a desired mix of skills, experience, and diversity relevant to the company’s strategic direction and operations while leveraging the deep institutional knowledge and valuable insight associated with the Board’s more tenured directors. Our focus is to have a board that continues to deliver a high standard of performance and governance expected by investors.

In 2019, we were pleased to welcome Christie Kelly to our Board of Directors. Ms. Kelly brings extensive leadership, finance, real estate, international and public company experience, as further described in this Proxy Statement under “Director Nominees” beginning on page 10.

 

The Nominating/Corporate Governance Committee’s policy is to consider candidates recommended by our stockholders. The stockholder must submit proof of Realty Income stock ownership along with a detailed résumé of the candidate and an explanation of the reasons why the stockholder believes the candidate is qualified for service on our Board of Directors. The stockholder must also demonstrate how the candidate satisfies our Board of Directors’ criteria and provide such other information about the candidate as would be required by the SEC rules to be included in a proxy statement, as well as our Bylaws. The consent of the candidate must be included along with a description of any arrangements or undertakings between the stockholder and the candidate regarding the recommendation. All communications are to be directed to the Chair of the Nominating/Corporate Governance Committee and sent to the address noted under “Communications with the Board” in this Proxy Statement on page 24.

A stockholder desiring to recommend a candidate for consideration by the Nominating/Corporate Governance Committee must deliver the recommendation along with the information noted above between November 2, 2020 and December 2, 2020 (not more than 150 days nor less than 120 days prior to the first anniversary of the date the company’s Proxy Statement is released to stockholders for the previous year’s annual meeting of stockholders) in order to be considered timely for consideration at next year’s annual meeting of stockholders. See “Stockholder Proposals for our 2021 Annual Meeting” in this Proxy Statement on page 66. Properly submitted stockholder recommendations will be evaluated by the Nominating/Corporate Governance Committee using the same criteria used to evaluate other director candidates.

The company’s stockholders also possess the right to nominate candidates for election to the Board through the “proxy access” provisions of our Bylaws. We have adopted a proxy access right for stockholders, pursuant to which an eligible stockholder, or a qualifying group of up to 20 stockholders, owning at least 3% of our outstanding shares of common stock continuously for at least three years, may nominate up to the greater of two directors or the largest whole number that does not exceed 20% of the number of directors up for election as of the last day in which a proxy access nomination may be submitted under our Bylaws, for inclusion in our proxy materials, subject to complying with the requirements contained in Article III, Section 15 of our Bylaws.

Our Board of Directors has determined that each of our current directors, except for Mr. Roy, has no material relationship with us (either directly or indirectly through an immediate family member or as a partner, stockholder or officer of an organization that has a relationship with us) and is “independent” within the meaning of our director independence standards and NYSE director independence standards. Our Board of Directors established and employed categorical standards, which mirror NYSE independence requirements, in determining whether a relationship is material and thus would disqualify a director from being independent.

The Nominating/Corporate Governance Committee also evaluates the Board of Directors leadership structure. Since 1997, the positions of Non-Executive Chairman of the Board of Directors and CEO have been separate in recognition of the differences between the two roles. Mr. McKee serves as our Non-Executive Chairman of the Board of Directors and presides as lead independent director, while Mr. Roy serves as our CEO. The Board of Directors believes this is the most appropriate structure because it enables the independent directors to participate meaningfully in the leadership of our Board of Directors while utilizing most efficiently the leadership skills of both Messrs. McKee and Roy. In addition, separating the roles of Non-Executive Chairman and CEO allows our Non-Executive Chairman to serve as a liaison between the Board of Directors and executive management, while providing our CEO with the flexibility and focus needed to oversee our operations.

Our Board of Directors has overall responsibility for risk oversight with a focus on the more significant risks facing our company. The Board of Directors reviews and oversees our enterprise risk management (ERM) program, which is a company-wide program designed to effectively and efficiently identify and assess management’s visibility into critical company risks and to facilitate the incorporation of risk considerations into decision making. The ERM program does this by clearly defining risks facing the company and bringing together executive management to discuss these risks. This promotes visibility and constructive dialogue around risk at the executive management and Board levels, and facilitates appropriate risk response strategies. Throughout the year, as part of the ERM program, management and the Board of Directors jointly discuss major risks that face our business.

In addition to the Board’s risk oversight, each of the Board’s committees exercises its own oversight related to the risks associated with the responsibilities of that committee:

By assigning such responsibilities, the Board of Directors believes it can more effectively identify and address risk. Throughout the year, the Board of Directors, and the committees to which it has delegated various risk responsibilities, dedicate a portion of their meetings to review and discuss specific risk topics in greater detail. Given the importance of the CEO to the success of the company and generation of stockholder value, the Board of Directors ensures that the company is developing and nurturing a pipeline of senior talent, including one or more individuals capable of becoming the CEO.

The Compensation Committee reviews our company-wide incentive programs to assess whether the incentive programs for all employees, including our named executive officers, encourage desirable behavior as it relates to our long-term growth, and reflect our risk management philosophies, policies and processes.

Named Executive Officers and Executive Vice Presidents. The total compensation is established after the Compensation Committee determines the appropriate performance metrics to best align the interests of management with the best interests of the company. The short-term incentive program metrics are based on financial, operational, and individual goals. The long-term incentive program metrics are primarily based on our TSR performance relative to our peers, and a value creation goal, and secondarily based on financial and operational goals. In addition, as previously discussed, we have adopted a clawback policy that enables us to recover incentive compensation awards in the event of negligence or misconduct directly related to a material restatement of our financial results, or miscalculated performance metrics that, if calculated correctly, would have resulted in a lower payment.

All Other Employees. Other officer and non-officer employee compensation awards are unlikely to encourage the taking of unnecessary or excessive risks that could threaten long-term value creation. Management monitors the cash and equity incentive awards made to our employees and reviews those awards in light of the potential risks relative to the control environment, each respective employee’s responsibilities, and the general policies and procedures of our company. The Compensation Committee has sought to align the interests of our employees with that of our stockholders through grants of restricted stock and restricted stock unit awards, thereby giving employees additional incentives to protect and align with long-term value creation. Based on its evaluation, the Compensation Committee does not believe that the compensation programs give rise to any risks that are reasonably likely to have a material adverse effect on our company.

Our Board of Directors met 16 times during 2019. All directors attended at least 75% of the aggregate of (i) the total number of meetings of our Board of Directors while they were members of our Board of Directors, and (ii) the total number of meetings of the Committees of our Board of Directors on which such directors served during the period he or she served. Although we have no policy with regard to Board of Director members’ attendance at our annual meeting of stockholders, it is customary for, and we expect, all Board of Director members to attend. All of our Board of Director members attended our 2019 annual meeting of stockholders.

To ensure free and open discussion among the independent directors, only independent directors attend executive sessions of our Board of Directors and Committee meetings unless, under certain circumstances, management is invited. As the Non-Executive Independent Chairman of our Board of Directors, Mr. McKee presided at each of the four executive sessions held during 2019.

Stockholders and other interested parties may communicate with the Non-Executive Chairman of our Board of Directors or with the non-employee directors, as a group, by either of the following methods:

All appropriate correspondence will be promptly forwarded by the Corporate Secretary to the Non-Executive Chairman of our Board of Directors.

The Compensation Committee is responsible for reviewing the compensation of members of the Board of Directors. Compensation for the independent directors of our Board of Directors for 2019 consisted of a base annual cash retainer, plus additional cash retainers for service as the Non-Executive Chairman or Chairperson of one of the committees of our Board of Directors in amounts as set forth below. In addition, each independent director receives an annual equity retainer based on a fixed number of shares provided for in the 2012 Incentive Award Plan.

Our directors received the following aggregate amounts of compensation for the year ended December 31, 2019:

The following table sets forth certain information as of the record date for the Annual Meeting of March 12, 2020 concerning our executive officers:

The primary objectives of our compensation program are to:

We continue to adhere to balanced compensation and corporate governance practices as set forth in the following table:

demonstrated below, reflects a strong alignment with the company’s performance and long-term value creation for our stockholders. In 2019, we continued our practice of engaging and interacting with our stockholders through various means of communication. In this regard, we routinely interact with stockholders throughout the year about executive compensation and other matters.

In addition to say-on-pay vote results and other feedback from stockholders, the Compensation Committee considers other factors in evaluating our executive compensation programs, including but not limited to:

Each factor is evaluated in the context of the Compensation Committee members’ responsibility to act in the company’s best interests.

In 2019, the Compensation Committee retained FPL Associates, L.P. (FPL), a nationally-known independent executive compensation and benefits consulting firm specializing in the real estate industry, to provide general executive compensation consulting services. In addition, the consultant performs special executive compensation projects and consulting services, as directed by the Compensation Committee.

The consulting services provided by FPL include:

FPL reports to the Compensation Committee and works with management as directed by the Compensation Committee. The Compensation Committee retains the right to terminate or replace FPL at any time. Pursuant to the Compensation Committee’s Charter, the Compensation Committee has the power to engage other consultants and advisors as required.

Through review and consultation with FPL, the Compensation Committee assessed the independence of FPL in light of, among other factors, the independence factors established by the NYSE. As a result of this assessment, the Compensation Committee has determined that FPL’s work raised no conflict of interest currently or during the year ended December 31, 2019.

The Compensation Committee uses comparison data from various companies it considers peers as a guide in its review and determination of base salaries, cash bonus payments, equity awards, and long-term performance awards. Prior to approving the 2019 incentive compensation program, the Compensation Committee reviewed peer group data to assist in its determination of total target direct compensation (on an aggregate and individual basis), as well as the appropriate mix of equity versus cash, short-term versus long-term, and performance-based versus time-based awards to be paid or granted for 2019 performance. The Compensation Committee evaluates

whether the compensation elements and levels that are provided to our named executive officers are generally appropriate relative to the compensation elements and levels provided to their counterparts at peer companies, in light of our performance relative to peers and in light of each named executive officer’s contribution to performance. This approach allows us to respond to competitive dynamics in the market and provides us with the flexibility to maintain and enhance our named executive officers’ engagement, focus, and motivation.

The Compensation Committee, with the help of FPL, annually reviews the composition of our peer group and the criteria and data used in compiling our peer group to ensure that each company’s size and operations remain comparable to ours. The peer group recommended by FPL and used by the Compensation Committee for 2019 compensation decisions (2019 Peer Group) remains unchanged from the group used for 2018 compensation decisions. Our 2019 Peer Group consists of the following 18 public real estate companies:

The companies in our 2019 Peer Group focus on a variety of asset classes with similar lease types, and those that are similar to us in size in terms of total market capitalization (common and preferred stock, partnership units convertible into stock and long and short-term debt) and equity market capitalization (common stock and convertible partnership units). The Compensation Committee believes that total market and equity market capitalization are the most relevant indicators of size for real estate companies, acknowledging that other industries may use different indicators like revenue. Using total market capitalization and equity market capitalization to determine peer groups is consistent with real estate industry practices. The companies were selected so that our total and equity market capitalization remained near the median of the peer group. All companies selected were less than 2.0x our size based on total market capitalization, and the majority of companies selected were below our size based on total market capitalization as further demonstrated in the 2019 Peer Group Comparison chart below. Larger companies included in the 2019 Peer Group balance the inclusion of our net lease peers, which generally are of significantly smaller size, such as Spirit Realty Capital, Inc. (approximately 20% of our total market capitalization) and National Retail Properties, Inc. (approximately 45% of our total market capitalization).

 

The Compensation Committee evaluates our peer group annually and may make adjustments to this peer group to reflect changes in the size or operations of the company or our peers. Please refer to page 44 for a discussion of the changes made to our 2020 peer group.

In setting compensation for named executive officers in 2019, the Compensation Committee solicited input from the CEO concerning each of the named executive officers other than himself. In addition, from time to time, the Compensation Committee will direct management to work with the Compensation Committee’s consultant in providing proposals, program design, and compensation recommendations. Each year, the CEO provides the Compensation Committee with a report of the company’s operating and financial results for the past fiscal year relative to the company’s performance metrics. He also discusses his personal assessment of individual performance of each of the other named executive officers. In addition, at the request of the Compensation Committee, the CEO makes recommendations regarding salary and incentive compensation awards for each named executive officer other than himself. The Compensation Committee considers these recommendations and other factors as discussed above in making the final determinations.

In structuring executive compensation, the Compensation Committee considers how each component of compensation motivates performance, promotes retention, and creates long-term stockholder value. Base salaries are primarily intended to attract and retain highly qualified executives and to reward them for their continued service. Annual incentive cash payments, equity awards, and long-term performance shares are designed to (i) directly reward performance, (ii) achieve specific strategic and operating objectives, and (iii) provide incentives to create long-term stockholder value. The majority of our equity incentives are intended to align named executive officers’ long-term interests with the best interests of the company although we believe they also play a role in helping us reward performance and attract and retain top executives.

stockholders. The goals for the AFFO per share metric were increased from 2018 with the maximum payout exceeding the top end of the company's AFFO per share earnings guidance range initially provided for 2019. The goals for the fixed charge coverage ratio, a liquidity metric, were also increased from 2018. The target goal for portfolio occupancy, an operational metric, remained unchanged from 2018. These goals are established each year after reviewing the company’s financial and operating projections, including the level of upcoming lease expirations. For the fixed charge coverage ratio and portfolio occupancy ratio metrics, the company attained maximum-level payouts. The Compensation Committee believes that these goals remain rigorous, requiring the company to manage its capital structure thoughtfully, successfully access the capital markets, and actively resolve lease rollover to achieve payouts in excess of target for this metric.

AFFO per share

Why we believe this metric is important: We believe that AFFO per share, a non-GAAP financial measure, provides useful information to investors because it is a widely accepted industry measure of the operating performance of REITs that is used by industry analysts and investors who look at and compare those companies. In particular, AFFO per share is included in the compensation program because it provides an additional measure to compare the operating performance of REITs without having to account for differing depreciation assumptions and other unique revenue and expense items which we believe are not pertinent to measuring a particular company’s on-going operating performance. Therefore, we determined that AFFO per share is an appropriate performance metric, and that the most appropriate GAAP performance metric to which AFFO should be reconciled is net income available to common stockholders per share.

How the Compensation Committee set the 2019 goal: In our 2019 public guidance at the time the performance goals were set, we projected AFFO per share in a range of $3.25 to $3.31. Our 2019 target performance was set at $3.28 per share, or the midpoint of our performance benchmark range. The range of $0.04 to $0.05 per share around target resulted in a threshold of $3.23 per share and a maximum of $3.32 per share. The threshold of $3.23 per share exceeded our generation of $3.19 in AFFO per share in 2018 by $0.04. The maximum score was set at $0.01 per share above the high end of our public guidance at the time the performance goals were set. Maximum performance would only be achieved if we exceeded the high end of such guidance. AFFO per share for 2019 was $3.32, resulting in an achievement of 200% of target. AFFO of $3.32 per share outperformed target primarily due to higher-than-anticipated acquisition growth. Acquisition growth continues to be challenging due to lower cap rates and general market factors in the real estate industry; therefore, attaining $3.7 billion in acquisitions requires extensive research, discipline and a well-established strategy.

Fixed Charge Coverage Ratio

Why we believe this metric is important: The fixed charge coverage ratio measures the ability of our earnings to cover our fixed charges, such as debt payments and interest expense. This calculation, which is not based on GAAP measurements, is one of our note covenants presented to investors to show our ability to incur additional debt under the terms of our senior notes and bonds, and is not a measure of our liquidity or performance. In particular, fixed charge coverage ratio is included in the compensation program because it is a measure of our balance sheet strength, and of our ability to effectively and conservatively manage our outstanding debt levels.

How the Compensation Committee set the 2019 goal: Our fixed charge coverage ratio was 4.4x at December 31, 2018. Factoring in a generally stable interest rate environment for the majority of 2018, the Compensation Committee increased the maximum metric to 4.5x for 2019. The target (4.2x) and threshold (3.9x) metrics were separated by 0.3x. Our fixed charge coverage ratio at December 31, 2019 was 5.0x, resulting in performance at the high end. Our metric exceeded the target primarily due to declining global interest rates throughout 2019, which supported a reduction in our financing costs in 2019. Additionally, our acquisitions volume of $3.7 billion was approximately double the volume invested in the prior year (at the same cap rate), driving further improvement in our coverage ratio.

Portfolio Occupancy

Why we believe this metric is important: The stability of operating revenue is fundamental to the business model of any dividend-paying entity. Within the REIT industry, this takes the form of stability of rental revenue secured by tenants occupying the portfolio’s real estate assets. As a result, maintaining a sufficiently high occupancy rate is of vital importance to the health of the company’s business model and, as such, it is essential that the company orients its operating strategy towards maximizing asset utilization as measured by the portfolio occupancy metric.

How the Compensation Committee set the 2019 goal: The Compensation Committee set 2019 target performance for portfolio occupancy at 98%. Threshold was set at 96.75% portfolio occupancy, and high was set at 98.4% portfolio occupancy. In setting an occupancy target, the Compensation Committee considers many variables that impact the portfolio occupancy rate, including the lease expiration schedule, existing vacancy pool, industry trends, product mix of expiring and vacant properties, past vacant resolution activity, and expected market conditions. Given that some of these factors exhibit nonlinear variability, the company’s past occupancy rates are only partially descriptive of future occupancy rates. For example, historical variability in acquisition volume can lead to uneven clustering of expiration schedules, creating short-term fluctuations in occupancy rates that are not necessarily indicative of long-term trends. Additionally, market shifts at the industry and tenant levels may carry disproportionate occupancy impact at the portfolio level. Only by accounting for the dynamics affecting each of these variables and by reforecasting occupancy expectations on a regular basis can the company set reasonable targets that consider the primary drivers of resultant occupancy rates.

As a component of the STIP, individual performance is used by the Compensation Committee to reward individual goals achieved. The Compensation Committee used the following process to establish individual performance goals and utilized discretion in assessing individual performance at the end of the performance year:

The Compensation Committee incorporated the recommendations provided by the CEO for the individual performance percentages for the named executive officers other than himself. The percentages earned under the individual performance metric and the material factors considered are set forth below.

We are a member of the MSCI US REIT Index, which is a broad REIT index, and the J.P. Morgan Net Lease Peer Group. Both groups are used to measure performance between REITs within and across the subsectors. The Compensation Committee selected the J.P. Morgan Net Lease Peer Group, a group of peers categorized as “triple net lease REITs” included in the J.P. Morgan REIT database published by J.P. Morgan North American Equity Research, in order to provide a set of companies that are more comparable to Realty Income in terms of lease type. There are many ways to compare our performance to each of these groups. The Compensation Committee analyzed the various methods and determined that comparisons on a percentile basis, was widely used in the marketplace and appropriate for evaluating our performance during the 2019-2021 performance period. The Compensation Committee believes that these goals remain rigorous, specifically the relative TSR metrics which require the company to outperform the indices to even achieve payouts at target. The relative TSR metric rewards management for outperformance relative to the Real Estate sector, which is targeted at the 55th percentile. Relative outperformance relative to the Real Estate and Net Lease benchmarks provides stockholders with value even during years where the company’s absolute TSR may be negative due to macroeconomic conditions outside of management’s control, such as rising interest rates. Accordingly, the metric is strictly relative TSR and does not include a provision limiting payout based on negative absolute TSR. The Debt-to-Adjusted EBITDAre ratio and dividend per share growth rate metrics require the company to manage its capital structure thoughtfully, and increase earnings to support the payment of monthly dividends in order to achieve payouts in excess of target for these metrics.

Dividend per share Growth Rate

Why we believe this metric is important: Part of our company’s annual mission statement is to increase the monthly dividend over time. Accordingly, management believes that increasing the dividend per share growth rate is a core metric for compensation. We have continued our over 50-year policy of paying monthly dividends and have paid 89 consecutive quarterly dividend increases and increased the dividend 106 times since our listing on the NYSE in 1994.

How the Compensation Committee set the 2019 goal: The Compensation Committee set 2019 target performance for dividend per share growth rate at 6.0%, consistent with what it felt investors would seek in this market environment. Threshold was set at a 2.0% dividend growth rate and maximum was set at a 10.0% dividend per share growth rate. Balancing our dividend per share growth with our earnings projections is challenging, due to market factors, which can have a direct impact on how and to what extent our earnings and the dividend grows. Maximum performance would only be achieved if we significantly grew the dividend.

Debt-to-Adjusted EBITDAre Ratio

Why we believe this metric is important: Management believes Adjusted EBITDAre to be a meaningful measure of a REIT’s performance because it is widely followed by industry analysts, lenders and investors. Management also believes the use of an annualized quarterly Adjusted EBITDAre metric is meaningful because it represents the company’s current earnings run rate for the period presented. Adjusted EBITDAre should be considered along with, but not as an alternative to, net income as a measure of our operating performance. Refer to Appendix A on page 68 for a reconciliation of AFFO to net income. Debt-to-Adjusted EBITDAre is included as a metric in our compensation program since management believes it measures our ability to pay off our debt and provides investors with a gauge of how long it would take for us to pay off our debt.

How the Compensation Committee set the 2019 goal: The Compensation Committee considered the optimal level of leverage to achieve investor returns, while balancing that with leverage levels deemed appropriate for our credit ratings level. The threshold (6.1x) and target (5.75x) performance metrics were separated by 0.35x.

The target (5.75x) and maximum (5.5x or less) performance metrics were separated by 0.25x. Debt-to-Adjusted EBITDAre for 2019 was 5.5x, resulting in performance at maximum. Our metric exceeded the target primarily due to the availability of cheaper equity capital versus debt to fund our robust acquisition activity. Similar to our fixed charge coverage ratio metric, maintaining a very favorable Debt-to-Adjusted EBITDAre metric is difficult in an unpredictable capital markets environment.

The long-term performance shares granted in February 2019 to our named executive officers are as follows:

The Compensation Committee grants restricted share awards on an annual basis which are designed to: (i) increase the named executive officers’ common stock ownership, (ii) motivate our named executive officers to improve long-term common stock price performance, (iii) align the named executive officers’ interests with the best interests of the company, and (iv) operate as a retention mechanism for key members of management.

In connection with the determination of the 2019 compensation program, the Compensation Committee proposed initial 2019 time-based restricted share award values to be granted in February 2020. The proposed time-based award values for all NEOs were reviewed and approved on February 13, 2020 and will vest evenly over four years commencing on January 1 of the year following the grant. The time-based restricted shares granted are as follows:

Our time-vesting, restricted share and restricted share unit awards are typically granted after fiscal year-end in recognition of the company’s prior year performance under the performance metrics for that year. For a discussion of restricted share awards granted in February 2019, which were intended to be compensation for 2018, see pages 36 to 43 of the company’s 2019 Proxy Statement filed with the SEC on April 1, 2019.

Our restricted shares and restricted share units typically vest 25% per year on January 1, but are subject to accelerated vesting in the event of retirement, which is defined as a voluntary termination of employment by persons who are at least 60 years of age and who have provided at least ten years of service to the company. The Compensation Committee believes that this vesting approach is (i) consistent with market practices, (ii) easy to administer, and (iii) preserves the benefit of acceleration, which occurs only upon actual retirement.

Given that Mr. Pfeiffer is eligible for retirement prior to the end of the vesting period, he was granted RSUs in February 2017, February 2018, February 2019, and February 2020 instead of restricted shares in order to preserve the deferral of his income taxation until the issuance of the shares upon vesting. The RSUs have dividend equivalents that pay out concurrently on the payment date of the dividend, regardless of the vested status of the RSUs. This provides the RSUs with the same economic rights as shares of restricted stock, which are entitled to cash dividends on the dividend payment date.

In February 2020, the Compensation Committee certified the achievement for the 2017-2019 performance shares that were granted in February 2017, based on our performance relative to the following metrics during the three-year performance period ending December 31, 2019:

For purposes of these metrics, TSR was calculated by comparing the trailing 20-trading-day average stock price at the end of the performance period, December 31, 2019, assuming contemporaneous reinvestment of dividends, to the closing stock price on December 31, 2016. Based on overall achievement above target performance levels, each named executive officer received 164.6% of the target shares granted. Fifty percent of the performance shares earned were issued as common stock that immediately vested. The remaining 50% are units subject to time vesting through January 1, 2021. The following table sets forth the performance shares earned by each NEO under the 2017 LTIP. Mr. Hagan did not receive a 2017 LTIP award payout, as he was not an employee during that performance year.

The Compensation Committee reviews our peer group and makes updates from time to time. Consistent with our standard practices, the Compensation Committee, with the help of FPL, reviewed the composition of our 2019 Peer Group to ensure that each company’s size and operations remained comparable to ours for 2020. Given our company’s continued growth during 2019, and that we have been above the median of our peer group for the past several years, the Compensation Committee determined that substitutions were warranted to ensure, among other factors, that our total and equity market capitalization remained near the median of the peer group for 2020. The Compensation Committee met in November 2019 to review the peer group to be used for 2020 compensation decisions (2020 Peer Group) and decided to make the following modifications to the 2020 Peer Group, as recommended by FPL:

Alexandria Real Estate Equities, Inc., Equity Residential, Public Storage, and Simon Property Group, Inc. were added to incorporate additional appropriately sized, best-in-class S&P 500 REITs, and a similar level of operational intensity. Equinix, Inc., Federal Realty Investment Trust, National Retail Properties, Inc., Spirit Realty Capital, Inc., The Macerich Company, and UDR, Inc. were removed based on relative size and/or additional qualitative factors. These substitutions resulted in a net decrease of two companies to the number of peers and positions us at the 50^th percentile in terms of total market capitalization, and at the 63^rd percentile in terms of equity market capitalization relative to this updated peer group.

The Compensation Committee evaluates our peer group periodically and may make adjustments to this peer group to reflect changes in the size or operations of the company or our peers.

Effective as of January 15, 2019, the Compensation Committee adopted the Company’s Executive Severance Plan (the “Severance Plan”), which provides severance compensation upon the occurrence of certain events. In connection with the adoption of the Severance Plan, the employment agreements previously in place between the company and Messrs. Roy, Meurer, Pfeiffer, Abraham and Hagan were terminated. In addition, our award agreements provide certain rights in connection with a change in control and certain terminations of employment.

The following is a list of the scenarios under which the named executive officers have rights to receive severance compensation.

Further detail surrounding the payments and benefits upon the occurrence of each scenario can be found in the section titled “Potential Payments Upon Termination or Change in Control” on page 51. The Compensation Committee believes these benefits are reasonable. The payments and benefit levels under the Severance Plan did not influence and were not influenced by other elements of compensation. The Severance Plan was designed to help (i) attract and retain key employees, (ii) preserve key employee’s morale and productivity, (iii) align with best practices, and (iv) promote continuity of management in the event of an actual or threatened change in control. These change in control benefits allow executives to assess takeover bids objectively without regard to the potential impact on their individual job security.

Mr. Meurer departed from his role as Chief Financial Officer of the company effective January 29, 2020. Mr. Meurer continued to serve as a senior advisor to the company at his most current annual base salary rate during a transition period which ended on March 31, 2020. Please refer to footnote 6 to the “Termination and Change in Control Scenario Table” on page 55 for additional details regarding his severance payments.

We provide medical and other benefits to our named executive officers that are similar to those benefits offered to all of our full-time employees, including a 401(k) plan with a matching contribution by the company and coverage under a health and disability insurance program.

Effective January 1, 2013, the Board of Directors implemented stock ownership requirements for the company’s CEO and the other named executive officers to closely align the interests of these individuals with the best interests of the company. The minimum share requirement is five times base salary for our CEO and three times base salary for the other named executive officers using their salary on January 1, 2013 or the date they became subject to the stock ownership requirements. Each executive has five years from the later of the date of adoption or date of appointment to an executive-level position to achieve the requirement.

All vested and unvested restricted share and RSU awards, and earned performance share units subject to time vesting qualify towards satisfaction of the requirement. Performance shares do not qualify towards the requirement. Compliance is evaluated on an annual basis as of December 31 of each year. The following table sets forth the requirements for each of our named executive officers:

Section 162(m) of the Internal Revenue Code of 1986, as amended, disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1 million in any taxable year for “covered employees.” Prior to the Tax Cuts and Jobs Act of 2017, covered employees generally consisted of our Chief Executive Officer and each of the next three highest compensated officers serving at the end of the taxable year other than our Chief Financial Officer, and compensation that qualified as “performance-based” under Section 162(m) was exempt from this $1 million deduction limitation. As part of the Tax Cuts and Jobs Act of 2017, the right to rely on this exemption was, with certain limited exceptions, eliminated; in addition, the definition of covered employees was expanded to generally include all named executive officers. The Board of Directors, after considering the potential impact of the application of Section 162(m) and future guidance of the new rules, reserves the right to provide compensation to executive officers that may not be tax deductible if it believes providing that compensation is in the best interests of the company.