The incentives created by our executive compensation program drive outstanding performance and have contributed to a strong track record of growth, diversification and stockholder value creation. We encourage our stockholders to review the information in our 2017 Proxy Statement for additional details about our compensation program and our commitment to pay-for-performance.
We require our executive officers to own shares of Ventas common stock that have significant value to further align interests with our stockholders. See Equity Ownership for information about our minimum ownership guidelines and other policies regarding our executive officers’ equity ownership.
Our executive compensation program is designed to achieve certain key objectives:
- Attract, retain and motivate talented executives
- Reward performance that meets or exceeds pre-established company and tailored individual goals consistent with our strategic plan, while maintaining alignment with stockholders
- Provide balanced incentives that discourages excessive risk-taking
- Retain sufficient flexibility to permit our executive officers to manage risk and adjust appropriately to meet rapidly changing market and business conditions
- Evaluate performance by balancing consideration of those measures that management can directly and significantly influence with market forces that management cannot control (such as monetary policy and interest rate expectations) but that impact stockholder value
- Encourage executives to become and remain long-term stockholders of our company (see Minimum Stock Ownership Guidelines)
- Maintain compensation and corporate governance practices that support our goal of delivering sustained, superior total returns to stockholders
Our long history of delivering sustained, superior returns to stockholders continued in 2016 with the following:
- With one- and three-year compound annual total stockholder return (“TSR”) of 16% and 13% respectively, we (a) finished in the top quartile of our broader peer group as to our one-year TSR and one position below top quartile for our three-year TSR, (b) ranked first among the large-cap diversified healthcare REITs in our peer group and (c) significantly outperformed the S&P 500 and Bloomberg Healthcare REIT Index.
- For the period from January 1, 2000 through December 31, 2016 (the 17 full fiscal years of our Chief Executive Officer’s tenure), we delivered compound annual TSR of over 25%, dramatically outperforming the S&P 500 index and the RMS index and ranking us first among our compensation peer group.
- We increased our dividend by over 6% in the fourth quarter of 2016.
Strategic, Financial and Operating Performance. We delivered exceptional TSR and strategic, financial and operating performance in 2016, including growing our normalized Comparable funds from operations (“FFO”) per share by 5%. Our 2016 strategic, financial and operating performance highlights included the following:
- Capital Allocation & Building a Hospital Business: Value Creating Investments and Dispositions:
- Accretive, diversifying investments, including our $1.5 billion acquisition of high-quality life science, innovation and medical real estate assets leased by leading universities, academic medical centers and research companies, and commitments to selective developments and redevelopments;
- Building out our hospital platform by making a commitment to fund Ardent’s acquisition of LHP, making Ardent a $3 billion revenue company operating in 6 states;
- Continuing to improve and enhance our portfolio by agreeing to sell $700 million skilled nursing facilities at a premium 7% cash yield;
- Accelerating our capital recycling program by completing over $600 million in profitable sales of non-strategic assets and receiving loan repayments;
- Effective Balance Sheet Management and Efficient Capital Markets Execution: Completion of over $2 billion in efficient long-term capital raises, including $1.3 billion in equity and $850 million in long-term debt at attractive rates and strengthening our balance sheet by improving our net debt to adjusted pro forma EBITDA ratio from 6.1x to 5.7x and achieving fixed charge coverage of 4.8x;
- Same-Store Cash Flow Growth: Delivery of 2.7% same-store cash flow growth;
- Investor Relations/Customer Focus/Employee Engagement:
- Expanded investor relations efforts through non-deal roadshows, presentations and increased outreach to generalist investors;
- Entering into innovative, mutually beneficial arrangements with customers to help them achieve their goals while creating value for Ventas, including with Sunrise Senior Living, Kindred Healthcare, Capital Senior Living and Brookdale Senior Living;
- Exceptional and improved employee engagement scores, and increased diversity and employee development initiatives;
- Sustainability, Values, Reputation and Industry Leadership:
- Ownership of an industry-leading portfolio of 30 LEED Certified buildings (150% increase from 2015 to 2016), increase in our ownership of ENERGY Star Certified buildings to 70 and receipt of numerous awards and recognitions during the year in REIT space, healthcare industry and among global corporations, including representation in the FTSE4GOOD Sustainability Index Series and MSCI Global Sustainability Index;
- Enhanced Ventas’ brand recognition through various media appearances, speaking engagements by senior Ventas executives and receipt of awards;
- Ventas Charitable Foundation contributed to 119 organizations in 2016, including support of the Greater Chicago Food Depository’s mission to end senior hunger;
- Organizational Efficiency and Effectiveness: Focused realignment of selected departments, process improvements, technology solutions and other efficiencies; and
- Other: We achieved a positive outcome for the Ernst & Young independence matter, secured key lease extensions and enhanced our Board’s effectiveness and diversity through director refreshment.
Ventas has a strong performance- and achievement-oriented compensation philosophy. Our 2016 executive compensation program supported this philosophy and provided the opportunity for our executive officers to earn market-competitive levels of compensation. The 2016 incentive awards earned by our Named Executive Officers, which constituted a significant percentage of their total compensation, reflect a well-designed compensation program intended to incentivize achievement of superior results on important performance metrics that drive stockholder value.
Annual Cash Incentive Compensation
In 2016, our Named Executive Officers had an opportunity to earn cash incentive awards based on our performance with respect to pre-established company financial goals and the achievement of individual objectives tailored for each Named Executive Officer. We achieved between target and maximum performance with respect to the company financial measures generally comprising 65% of the 2016 annual cash incentive award value:
COMPANY FINANCIAL PERFORMANCE (generally 65% of 2016 cash incentive award value)
- Normalized FFO per Share (cash): Our normalized FFO per diluted share, excluding non-cash items, for the year ended December 31, 2016 was $4.13, finishing between the target performance goal of $4.10 and the maximum performance goal of $4.18.
- Fixed Charge Coverage Ratio: As of December 31, 2016, our fixed charge coverage ratio was 4.8x, exceeding the maximum performance goal of 4x.
With respect to the portion (generally 35%) of the 2016 annual cash incentive awards based on individual performance, the Compensation Committee and, in the case of our Chief Executive Officer, the independent members of the Board determined that each Named Executive Officer attained between target and maximum performance, depending on his or her unique contributions to our success. As a result, cash incentive awards granted to our Named Executive Officers for 2016 performance ranged from 100% to 149% of their respective target award opportunities.
See our 2017 Proxy Statement for additional details.
2016 Long-Term Equity Incentive Compensation
For 2016, long-term equity incentive awards were based on our performance with respect to pre-established quantitative measures, specifically one- and three-year relative TSR and net debt to adjusted pro forma EBITDA at year end (which accounted generally for 50% of the award value), and a qualitative evaluation of our performance with respect to pre-established financial, operational and strategic objective (which accounted generally for 50% of the award value).
With one- and three-year compound annual TSR of 16% and 13% respectively, we (a) finished in the top quartile of our broader peer group as to our one-year TSR and one position below top quartile for our three-year TSR, (b) ranked first among the large-cap diversified healthcare REITs in our peer group and (c) significantly outperformed the S&P 500 and Bloomberg Healthcare REIT Index. This resulted in maximum payout for one-year TSR and near maximum payout for three-year TSR (which represent 35% of the award opportunity under our long-term plan). Our net debt to adjusted pro forma EBITDA ratio was 5.7x, exceeding the maximum performance goal of 5.9x. Therefore, our Named Executive Officers earned long-term equity incentive awards between the target and maximum levels, with awards ranging from 116% to 137% of their respective target award opportunities.
See our 2017 Proxy Statement for additional details.
2017 Long-Term Equity Incentive Compensation
After soliciting and carefully considering feedback from our largest stockholders, the Compensation Committee adopted a responsive and completely-redesigned long-term equity incentive program, which will begin with the 2017 compensation cycle. This new program responds directly to the feedback provided by investors in our stockholder engagement process and further emphasizes our commitment to aligning pay and performance, retaining and motivating talented executives and rewarding superior performance without incentivizing undue risk-taking. In addition, the new program is consistent with our overall strategy of targeting the total direct compensation of our Named Executive Officers at approximately the market median, subject to adjustment based on the unique skills, expertise and individual contributions of each Named Executive Officer. The key features of the new 2017 program are summarized below.
- Forward-Looking Rather than Retrospective. The new 2017 long-term incentive compensation program will be prospective instead of retrospective. Performance-based awards will be earned at a higher or lower level based on future performance, rather than being granted following the satisfaction of specified performance goals.
- Removal of Qualitative or Discretionary Goals. Qualitative or discretionary goals, which comprised 50% of the award opportunity under the prior program, have been completely eliminated.
- Longer Measurement Period. We have removed all one-year performance periods and moved to all three-year performance periods for performance-based awards.
- Increase in Performance-Based Component. Under the new 2017 program, the aggregate target award value for each Named Executive Officer will be allocated such that 60% of the value is performance-based, in the form of performance-based restricted stock units (“pRSUs”) and 40% of the value is time-based RSUs.
- Balanced Mix of Performance Metrics.
- 42.5% of the overall award opportunity under the new 2017 program (and 70.8% of the pRSU award component) may be earned based on two relative TSR metrics (whereas previously, relative TSR metrics were weighted 35% overall): (a) the Company’s relative TSR as compared against the MSCI REIT Index over the three-year performance period beginning on January 1 of the applicable grant year, comprising 25% of the overall award opportunity and 41.7% of the pRSU component, and (b) the Company’s relative TSR as compared against the FTSE NAREIT Equity Health Care Index over the three-year performance period beginning on January 1 of the applicable grant year, comprising 17.5% of the overall award opportunity and 29.2% of the pRSU component.
- Consistent with our investors’ strong preference for the maintenance of a risk mitigation metric, 17.5% of the overall award opportunity (and 29.2% of the pRSU component) may be earned based on the three-year average of the ratio of the Company’s net debt to adjusted pro forma EBITDA.
- Elimination of Stock Option Component; Longer Time-Based Vesting Period. Stock options have been completely eliminated under the new 2017 program. Time-based RSUs will vest in equal installments on each of the first three anniversaries of the grant date to promote retention, generally subject to the Named Executive Officer’s continued employment with the Company on each such date. Unlike the prior program, no portion of the RSUs will be vested as of the grant date.
- Double-Trigger Vesting. All awards granted under the new 2017 program are subject to double-trigger vesting upon the consummation of a change of control.
Debra A. Cafaro Employment Agreement
Our amended and restated employment agreement with Debra A. Cafaro, our Chairman of the Board and Chief Executive Officer, does not entitle her to severance benefits solely upon a change of control or to any tax gross-ups with respect to payments made in connection with a change of control. A more detailed description of Ms. Cafaro’s employment agreement is set forth in our 2017 Proxy Statement.
As of March 22, 2017, Debra A. Cafaro, our Chief Executive Officer and Chairman of the Board, owned 2.79 million shares of our common stock (including unvested shares of restricted stock and vested and unexercised options), and our five executive officers owned an aggregate of 4.08 million shares of our common stock (including unvested shares of restricted stock and vested and unexercised options). See Minimum Stock Ownership Guidelines.
Anti-Hedging and Anti-Pledging Policy
Our Securities Trading Policy and Procedures prohibits our executive officers and directors from engaging in derivative and other hedging transactions in our securities, and it restricts our executive officers and directors from holding our securities in margin accounts or otherwise pledging our securities to secure loans without the prior approval of the Audit Committee. None of our executive officers holds Ventas securities in a margin account or has otherwise pledged Ventas securities.
In accordance with our minimum share ownership guidelines, each of our executive officers is required to maintain a minimum equity investment in Ventas based upon a multiple (ranging from three to six times) of such executive officer’s base salary. Executive officers must achieve the minimum equity investment within five years from becoming subject to the guidelines and, until such time, must retain at least 60% on a pre-tax basis, or approximately 100% on an after-tax basis (assuming a 40% tax rate), of the shares of common stock granted to the executive officer or purchased by the executive officer through the exercise of stock options. All of our executive officers are currently in compliance with the minimum stock ownership guidelines.
Our executive officers are subject to our Policy for Recoupment of Incentive Compensation. If we are required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, then the Compensation Committee may require any executive officer to repay to Ventas all or any portion of any cash or equity incentive compensation received by the executive officer during the preceding three-year period that exceeds the amount he or she would have received if the incentive compensation had been calculated based on the restated financial results.
Share Withholding Program
We maintain a share withholding program under our equity incentive plans that enables our employees to elect to have shares withheld to satisfy their minimum tax withholding obligations upon the vesting of restricted stock or the exercise of stock options. If an executive officer elects to withhold shares, the tax withholding will be disclosed on a Form 4 as a disposition of the withheld shares.
From time to time, certain of our executive officers may adopt non-discretionary, written trading plans that comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934 (“10b5-1 plans”), or otherwise monetize, gift or transfer their equity-based compensation. These 10b5-1 plans permit our executive officers to monetize their equity-based compensation in an automatic and non-discretionary manner over time and are generally adopted for estate, tax and financial planning purposes.
Our Securities Trading Policy and Procedures requires preclearance of any 10b5-1 plan by our Legal Department and provides that executive officers may enter into or modify a 10b5-1 plan only during an open trading window and while not in possession of material non-public information. In addition, our Securities Trading Policy and Procedures generally prohibits our executive officers from entering into overlapping 10b5-1 plans.
Updated: April 4, 2017