Academic journal article The Journal of Real Estate Research

What Influences the Changes in REIT CEO Compensation? Evidence from Panel Data

Academic journal article The Journal of Real Estate Research

What Influences the Changes in REIT CEO Compensation? Evidence from Panel Data

Article excerpt

Abstract This study examines what influences the changes in REIT CEO compensation using the following performance measures: average three-year total returns to shareholders, market value added, Tobin's q, and change in funds from operations. The impact of managerial power on the change in compensation is also examined. The empirical evidence indicates that firm performance and size do not influence the change in CEO salary, while risk, tenure, title, ownership, and age have significant impacts. Bonuses are not influenced by risk, size, or CEO power; however, they are influenced by performance. Option awards are affected by performance and CEO power.

(ProQuest: ... denotes formulae omitted.)

Agency problems and costs arise because of the ''separation of ownership and control'' of a corporation. Stockholders face two sources of agency problems. First, partial ownership of the firm by managers may induce the managers to consume non-pecuniary benefits (perquisites) beyond those that a sole owner would consume. The second problem is underinvestment (residual loss). Both are costly and difficult to solve. Jensen and Meckling (1976) show that as the owner manager lessens her ownership, agency costs (monitoring, bonding, and residual loss) increase monotonically. Boards of directors try to minimize these agency problems through compensation contracts.

Executive compensation has been the subject of many studies. Most have focused on industrial firms.1 Chopin, Dickens, and Shelor (1995) study real estate investment trust (REIT) executive compensation and examine the influence board structure has on the level of CEO compensation. They also examine the relationship between the level of compensation of top REIT executives and standard accounting measures, such as the change in revenue, total assets, net income, EPS, and unexpected profits. Hardin (1998) examines Equity REITs (EREITs) and finds that size, number of years since the EREIT's initial public offering (IPO), dollar amount of dividends paid to senior executives and percentage of stock owned by senior executives have a significant influence on the level of senior executive compensation. Scott, Anderson, and Loviscek (2001) examine the impact of market-based performance measures on REIT executives' total incentive compensation. Pennathur and Shelor (2002) examine the relationship between changes in CEO compensation, specific performance measures of the REIT industry, and stock returns. Pennathur, Gilley, and Shelor (2005) explore the association between REIT CEO stock-based compensation and industry-specific performance measures. Gosh and Sirmans (2005) examine how a board's structure influences CEO compensation packages.

This study investigates whether the following influence the changes in REIT CEO compensation: (1) CEO power (tenure, title, interlock relationship, and ownership), (2) the size and complexity of the firm, (3) firm risk and CEO risk aversion, and (4) firm performance.2 Four measures of CEO performance are employed. The first performance measure used is the average three-year total return to shareholders (TR3YR). The next measure is market value added (MVA), defined as the difference between the market value of capital items and capital invested. The third measure used is Tobin's q. Although MVA and Tobin's q are used in the corporate finance literature as measures of managerial performance, they have rarely been used in previous REIT research studies. The final performance measure is the change in funds from operations (CFFO), which is used extensively in the REIT literature. The influences various REIT and CEO characteristics have on the change of CEO compensation are also examined.

Five forms of REIT CEO compensation are used to examine the influences of firm performance: (1) change in CEO salary (CSalary), (2) cash bonuses (BONUS), (3) the change in CEO salary plus bonus (CTCC), (4) the change in CEO total compensation (CTDC), and (5) stock options granted (BLKVAL). …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.