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
- Link realized compensation to the achievement of pre-established financial and strategic company goals, as well as individual goals
- Provide balanced incentives that do not promote 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
- Reward performance that meets or exceeds pre-established goals while maintaining alignment with stockholders
- Evaluate performance by balancing consideration of metrics over which management has significant direct influence with market forces (e.g., monetary policy and interest rate expectations) that management cannot control, 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 consistent, superior total returns to stockholders
Ventas had an excellent year of financial performance in 2013, as we achieved record profits, cash flows and normalized FFO per share by executing on our business strategy and building upon our three core strengths: making accretive investments; raising capital; and managing our assets. We grew internally from exceptional performance in our same-store portfolio and externally by successfully completing approximately $2.3 billion of diversifying investments since December 2012. At the same time, we retained our significant financial strength and flexibility and improved our attractive cost of capital.
Elements of Compensation
We emphasize performance-based incentive compensation over fixed cash compensation to achieve greater alignment with stockholders, focus decision-makers on the creation of long-term value and encourage prudent evaluation of risks. Flexibility in our long-term incentive plan allows management to manage risk and adjust appropriately to meet rapidly changing market and business conditions to create and preserve long-term value for our stakeholders.
Ventas has a strong performance- and achievement-oriented compensation philosophy. Our 2013 executive compensation program supported this philosophy and provided the opportunity for our executive officers to earn market-competitive levels of compensation. The 2013 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 2013, our executive officers had an opportunity to earn cash incentive awards for achievement of pre-established company and individual goals. We achieved maximum performance with respect to the company financial performance metrics comprising 65% of our 2013 annual cash incentive awards:
COMPANY FINANCIAL PERFORMANCE (65% of 2013 cash incentive awards)
- Normalized FFO per Share Growth: Our year-over-year normalized FFO per diluted share, excluding non-cash items, increased 11% from $3.60 to $3.99, exceeding the maximum performance goal.
- Acquisitions: We completed approximately $2.3 billion of acquisitions (excluding the value of anticipated sales of loan investments and shares of our common stock we acquired in connection with the acquisition of certain private investment funds) during the performance period, exceeding the maximum performance goal.
- Fixed Charge Coverage Ratio: As of December 31, 2013, our fixed charge coverage ratio was 4.50x, exceeding the maximum performance goal.
With respect to the portion (35%) of the 2013 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. To strengthen alignment between our Chief Executive Officer’s compensation and stockholder value, the independent members of the Board utilized their discretion to reduce the individual performance component of our Chief Executive Officer’s 2013 annual cash incentive award despite her strong leadership and performance.
See our 2014 Proxy Statement for additional details.
Long-Term Equity Incentive Compensation
Based on the Compensation Committee’s ongoing consideration of market practices, our business needs and feedback from our stockholders, we modified our long-term incentive plan for 2013 such that 50% of the value of the long-term incentive awards would be determined on the basis of performance with respect to pre-established quantitative performance metrics (primarily one- and three-year relative TSR) that were not subject to Compensation Committee or Board discretion. The other 50% of the value of the awards would be determined on the basis of a qualitative evaluation of performance with respect to pre-established financial, operational and strategic performance factors that enabled the Compensation Committee and the independent members of the Board to use their discretion to evaluate our success in preserving long-term stockholder value and avoiding excessive risk-taking.
Overall performance on the performance goals (one-year relative TSR, three-year relative TSR and net debt to adjusted pro forma EBITDA) under the quantitative portion (50%) of the 2013 long-term incentive plan approximated 50% of the maximum performance opportunity. With respect to the portion (50%) of the 2013 long-term incentive plan based on a qualitative evaluation of specific performance factors, the Compensation Committee and, in the case of our Chief Executive Officer, the independent members of the Board balanced our strong financial and operational performance in 2013 with consideration of our relative TSR performance and determined that the Named Executive Officers had achieved between target and maximum performance. See our 2014 Proxy Statement for additional details.
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 2014 Proxy Statement.
As of December 15, 2014, Debra A. Cafaro, our Chief Executive Officer and Chairman of the Board, owned 2.11 million shares of our common stock (including unvested shares of restricted stock and unvested and unexercised options), and our six executive officers owned an aggregate of 3.12 million shares of our common stock (including unvested shares of restricted stock and unvested 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 five 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, subject to transition rules.
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 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 participates in our Share Withholding Program, 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, modify or terminate a 10b5-1 plan only during an open trading window and while not in possession of material non-public information. Moreover, any 10b5-1 plan must include a waiting period of no less than 30 days between establishment or modification of the plan and any transaction pursuant to the plan. In addition, our Securities Trading Policy and Procedures generally prohibits our executive officers from entering into overlapping 10b5-1 plans.
Debra A. Cafaro 10b5-1 Plans
On October 2, 2014, Ms. Cafaro adopted a 10b5-1 plan with respect to shares of common stock expected to be acquired by her through the exercise of options previously granted to her as a portion of her long-term incentive compensation. Ms. Cafaro’s 10b5-1 plan currently covers the sale of up to 23,432 shares of common stock, subject to a minimum sales price condition of $75.00 per share, and is expected to remain in effect until October 2015. On November 25, 2014, 47,618 options having an exercise price of $41.54 per share that were scheduled to expire on January 22, 2018 were exercised and the shares acquired thereby were sold under Ms. Cafaro’s 10b5-1 plan; and in December 2014, 71,803 options having an exercise price of $41.54 per share that were scheduled to expire on January 22, 2018 were exercised and the shares acquired thereby were sold under Ms. Cafaro’s 10b5-1 plan.
Also on October 2, 2014, the Debra A. Cafaro Insurance Trust (the “Cafaro Trust”), of which Ms. Cafaro’s spouse is the trustee, adopted a 10b5-1 plan with respect to shares of common stock expected to be acquired by the Trust through the exercise of options previously granted to Ms. Cafaro as a portion of her long-term incentive compensation and gifted to the Cafaro Trust. The Cafaro Trust’s 10b5-1 plan currently covers the sale of up to 64,528 shares of common stock, subject to an average minimum sales price condition in excess of $75.00 per share, and is expected to remain in effect until October 2015. In November 2014, 89,246 options having an exercise price of $43.26 per share that were scheduled to expire on January 17, 2017 and 95,236 options having an exercise price of $41.54 per share that were scheduled to expire on January 22, 2018 were exercised and the shares acquired thereby were sold under the Cafaro Trust’s 10b5-1 plan; and in December 2014, 143,710 options having an exercise price of $41.54 per share that were scheduled to expire on January 22, 2018 were exercised and the shares acquired thereby were sold under the Cafaro Trust’s 10b5-1 plan.
Since 2002, Ms. Cafaro has sold shares of our common stock through various divestitures and 10b5-1 plans.
T. Richard Riney 10b5-1 Plans
On December 16, 2014, Mr. Riney adopted a 10b5-1 plan with respect to shares of common stock expected to be acquired by him through the exercise of options previously granted to him as a portion of his long-term incentive compensation. Mr. Riney’s 10b5-1 plan covers the sale of up to 39,381 shares of common stock, subject to an average minimum sales price condition of $71.31 per share, and is expected to remain in effect until December 2015.
Also on December 16, 2014, the Riney Family Trust (the “Riney Trust”), of which Mr. Riney’s spouse is the trustee, adopted a 10b5-1 plan with respect to shares of common stock previously granted to Mr. Riney as a portion of his long-term incentive compensation and gifted to the Riney Trust. The Riney Trust’s 10b5-1 plan covers the sale of up to 12,465 shares of common stock, subject to a minimum sales price condition of $70.00 per share, and is expected to remain in effect until December 2015.
Updated: December 17, 2014