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 2013 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 Policies 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 compensation realized to the achievement of pre-established financial and strategic goals
- Reward performance that meets or exceeds these goals
- Encourage executives to become and remain long-term stockholders of our company (see Minimum Stock Ownership Guidelines)
- Provide balanced incentives that do not promote excessive risk-taking
- Provide flexibility that incentivizes our executive officers to manage risk and allows them to adjust to meet rapidly changing market and business conditions
- Maintain compensation and corporate governance practices that are designed to deliver consistent, superior total returns to stockholders
Our total shareholder return (“TSR”) for each of the one-, three-, five- and ten-year periods ended December 31, 2012 exceeded the returns of the S&P 500 index and the MSCI US REIT (“RMZ”) index for such periods. Our flexibility, risk management, strategy and ability to execute and adapt quickly contribute to our excellent performance while avoiding significant value destruction during economic downturns.
Elements of Compensation
We emphasize variable pay and long-term equity incentive compensation over fixed pay and cash compensation to achieve greater alignment with stockholders, focus decision-makers on long-term value and encourage prudent evaluation of risks. Flexibility in our long-term incentive plan allows management to adjust to meet rapidly changing market and business conditions and to act appropriately to create, and preserve, long-term value for our stakeholders.
Ventas continues to outperform and deliver superior total shareholder returns. The 2012 executive compensation decisions made by our Executive Compensation Committee and the independent members of our Board of Directors strongly supported our philosophy of promoting a performance- and achievement-oriented environment that provides the opportunity for our executive officers to earn market-competitive levels of compensation.
Annual Cash Incentive Compensation
In 2012, our executive officers had an opportunity to earn cash incentive awards for achievement of pre-established company and individual goals. In January 2013, the Compensation Committee and, in the case of our Chief Executive Officer, the independent members of our Board determined that our company had achieved at a very high level along the continuum of performance established for the 2012 goals and recognized the performance of our executive officers toward the attainment of such goals. See our 2013 Proxy Statement for additional details.
Long-Term Equity Incentive Compensation
Equity incentive awards encourage management to create stockholder value over the long term because the value of the equity awards is directly attributable to changes in the price of our common stock over time. Our long-term equity incentive awards require the satisfaction of pre-established performance goals prior to grant, and the grant and size of the awards are determined solely by past performance. Equity awards, if earned, are granted at the beginning of each fiscal year for performance through the preceding fiscal year. As a result, at the time long-term equity incentive awards are granted, the awards have been fully earned. Our long-term equity incentive awards are subject to additional time-based vesting requirements to promote retention.
In January 2013, the Compensation Committee and the independent members of our Board carefully evaluated each executive officer’s performance with respect to the 2012 long-term equity incentive plan performance metrics in the context of the macroeconomic environment and conditions in the healthcare REIT industry and determined that our overall performance was outstanding. See our 2013 Proxy Statement for additional details.
For 2012, long-term incentive compensation consisted of equity awards in the form of stock options (30%) and shares of restricted stock (70%) granted pursuant to our 2012 Incentive Plan. The Compensation Committee believes that restricted stock provides a stronger incentive to create and preserve long-term stockholder value and, therefore, has weighted the long-term equity incentive awards more heavily toward restricted stock.
Debra A. Cafaro Employment Agreement
In March 2011, we entered into an amended and restated employment agreement with Debra A. Cafaro, our Chairman of the Board and Chief Executive Officer. Pursuant to her employment agreement, our Chief Executive Officer is not entitled to severance benefits solely upon a change of control, nor is she entitled 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 2013 Proxy Statement.
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 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.
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. 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 Plan
As of April 5, 2013, Debra A. Cafaro, our Chief Executive Officer and Chairman of the Board, owned 1.74 million shares of our common stock (including vested and unvested shares of common stock and vested and unvested unexercised options). See Minimum Stock Ownership Guidelines.
On June 29, 2012, Ms. Cafaro adopted a 10b5-1 plan respecting shares of Ventas common stock previously awarded to her that complied with the requirements of Rule 10b5-1(c) under the Securities Exchange Act of 1934 (the "Cafaro Plan"). From June 2012 to March 2013, an aggregate of 208,097 shares of our common stock owned outright, and 95,534 shares of our common stock acquired through the exercise of options, representing all of the shares covered by the Cafaro Plan, were sold under the plan. The Cafaro Plan was designed for estate, tax and financial planning purposes. In every year since 2002, Ms. Cafaro has sold shares of our common stock through various divestitures and 10b5-1 plans.
Updated: April 5, 2013