SL Green defends Holliday’s $16.4M payday

SL Green Realty responded to criticism that its executive compensation package is overly generous, saying that the $16.4 million payday for CEO Marc Holliday was justified by the real estate investment trust’s superior performance.

On May 22, Institutional Shareholder Services, an advisory and corporate governance firm, recommended that SL Green shareholders vote against ratifying the REIT’s compensation to named executive officers at the company’s annual meeting June 4. SL Green, the city’s largest commercial landlord, opted to pay Holliday $16.4 million in 2014, a nearly 30 percent year-over-year increase from $12.7 million in 2013. It also decided to pay President Andrew Mathias $11 million, an 18 percent year-over-year bump.

While noting that SL Green has produced “strong shareholder returns” and has “consistently outperformed peers and the markets generally over both the short and long-term,” ISS cited “concerns” regarding “multiple discretionary equity awards” under the REIT’s incentive plan that “undermine the use of a formulaic and objective incentive program.” The awards, ISS added, undermine SL Green’s commitment “to establish more strongly performance-based incentive programs in response to shareholder concerns.”

But the REIT rebutted ISS’ claims in a May 28 letter filed with the Securities and Exchange Commission, in which it claimed ISS “failed to appropriately account for our superior performance and the strong alignment between our performance and our CEO’s compensation” and asking that ISS “reconsider” its position.

John Alschuler, chair of SL Green’s compensation committee and founder of real estate and policy consulting firm HR&A Advisors, also stood by the REIT’s executive pay practices. His job as compensation chair, he told The Real Deal Monday, “is to do two things: keep in place one of the top management teams in American real estate and be prudent with the shareholders’ money.”

SL Green met or exceeded many of its stated performance objectives in 2014, according to SEC filings detailing the REIT’s performance-based compensation incentives. The company has remained active in 2015, entering a contract to acquire Sapir Organization and CIM Group’s 11 Madison Avenue office building for $2.6 billion and receiving city council approval for the proposed One Vanderbilt office tower in the last month.

ISS pegged Holliday’s pay as being more than two times the median compensation earned by his peers such as Vornado Realty Trust’s Steven Roth and Boston Properties’ Owen Thomas. Roth earned $9.8 million in total compensation in 2014 — a nearly 34 percent increase from $7.3 million the previous year — while Thomas’ salary jumped just over 10 percent to $8.3 million.

But SL Green took exception to the peer group used by ISS, noting in its letter that the advisory firm considered companies “that are not located in New York and/or are not primarily focused on the same real estate asset class or, in some cases, real estate at all,” such as investment managers Legg Mason  and Waddell & Reed Financial. The REIT added that the Blackstone Group and Fortress Investment Group, companies that SL Green considers its peers, were not vetted part of ISS’ analysis. Blackstone CEO Stephen Schwarzman earned almost $86 million in 2014 while Fortress principal and co-char Peter Briger Jr.’s total salary amounted to $26.4 million last year, per SEC filings.

“Their peer group is wrong and their judgment that we pay too much is wrong,” Alschuler said, adding: “What matters is how the shareholders vote.” SL Green shareholders have voted in defiance of ISS’s recommendations and approved company’s executive compensation packages the previous two years.

Discrepancies between executive compensation and employee pay at major corporations has received much attention in recent years, with “say-on-pay” practices increasingly prevalent in wake of Dodd-Frank’s passage into law in 2010.