Tanger Factory Outlet Centers is one example of a company that has modified its corporate governance policy, to assuage investors and base CEO compensation more heavily on stock performance. Image courtesy of Facebook.
It’s becoming more and more important for company CEOs to have strong financial or stock market performance if they hope to earn the best compensation, according to a recent Hay Group analysis of proxy statements. Regulating chief executive officers has been a top priority for investors, especially following the Enron and WorldCom scandals.
Tanger Outlets, Inc. (SKT), based out of Greensboro, N.C., has recently joined ranks with the growing number of companies who are tying top executives’ compensation with how well the company is doing in the stock market. As of Feb. 2013, Tanger Outlets developed new corporate governance policies, including a “clawback” and “anti-hedging” policies, both of which ensure that Steven Tanger (Tanger Outlets’ current CEO) has a minimum equity ownership in Tanger’s stock.
“We’re trying to align the senior management team with shareholder interest,” said Cyndi Holt, vice president of finance and investor relations at Tanger Outlets, Inc. “If the CEO owns 10 times his base salary [worth of stock], it’s in his best interest for the company to do well, which is in the best interest of the shareholders.”
Tanger is now required to own 10 times his base salary in stocks. Prior to February, he was only required to own five times his base salary, although Holt said he has generally owned more than that since becoming CEO, in Jan. 2009.
Tanger Outlets’ new policies that require its CEO and executive officers to own a certain percentage of shares shows the increased power of shareholders in the business world. The Hay Group’s recent analysis of proxy statements examined the compensation policies of 51 CEOs, more than half of which had specific stipulations about the number of shares owned by the CEO. The fraudulent scandals of Enron and WorldCom tightened not only SEC regulations on companies, but gave more power to investors.
“I think that, with those scams, institutional investors became more and more concerned,” Holt said. “If you look at the top executives, that’s a lot of money in the investment team. Investors want to make sure they know what they’re getting for that investment. Are those management teams, who are so well-compensated, being incentivized appropriately?”
Comparatively, in 2009, only 35 percent of the compensation of CEOs was tied to stock market success, according to the Hay Group analysis. Most of the CEO pay came from salaries and stock grants, but with little to no stipulations about how much ownership the CEO had in the company. Farient Advisors, an executive compensation consultant, also said that 64 percent of Standard & Poor’s 1500-stock indexes had performance-based pay policies attached to compensation criteria starting in 2011, up 20 percent from 2002.
Tanger’s 2012 base salary was $800,000, although his total compensation was $12.7 million. The majority of his compensation was found in share awards, which totaled $10 million. It has become more important for investors to feel as though Tanger’s pay is well-deserved and reflective of the company’s success.
One of Tanger Outlets’ competitors, CBL & Associates Properties Inc. (CBL), is another mall real-estate investment trust (REIT), managing 159 properties in the U.S. Unlike Tanger Outlets, which focuses on factory outlets, CBL’s properties include outdoor shopping centers, indoor malls as well as factory outlets, making their clientele less niche than Tanger’s clientele, as well as much larger.
But the CEO compensation of top executives in CBL differs from Tanger Outlets’ executive compensation. The CEO of CBL, Stephen D. Lebovitz, earned a total of $1,645,320 in 2012, with 28 percent of his salary coming from stock awards. Comparatively, Tanger’s stock award compensation is 79 percent of his total pay. CBL requires its executive officers to own three times worth the prior year’s base salary in stocks, instead of the 10 times amount Tanger Outlets requires of its CEO.
The new policies implemented by Tanger Outlets are not only aimed at the CEO, but the other top executive officers of the company. One such policy is an anti-hedging policy, which is usually established to prohibit company executives and directors from hedging against a decline in the company’s stock.
“The anti-hedging policy applies to any equity-based compensation,” Holt said. “We engage in compensation consulting to do market analysis and determine what our favorable equity compensation practices are for similar positions or companies.”
Holt said there is a relativity aspect to the new compensation policies as well – for instance, if a market-related incident has the entire market down 30 percent, and Tanger Outlets is only down 5 percent, the management has done something to outperform the peer group, so the compensation of executive officers will not be as adversely affected.
CEO Compensation: Tanger and Leibovitz (information courtesy of companies’ 2013 proxy statements)
2008-2012 Tanger Outlets Revenue and Net Income (information courtesy of companies’ 2008-2012 annual reports)
CEOStockOption (information courtesy of The Hay Group)
StockMovement (information courtesy of NYSE)
Industry Report: The Retail Sector
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