REIT Manager Remuneration—What's the Win-Win Strategy?

With the recent MAS regulatory changes, REIT managers must review their remuneration policies. Which are the best practices that will help them comply, and still get the best performance out of their employees?

REIT Manager Remuneration—What's the Win-Win Strategy?

9 Dec 2016 by  Jacob Tan

Real Estate Investment Trusts (REITs), where consumers buy units in a portfolio of commercial properties for dividends from revenue earned, have been getting more popular in Singapore. Yet with growth comes regulation. To protect the interests of these unitholders, the Monetary Authority of Singapore (MAS) introduced new guidelines that became effective this year.

As an HR professional in REIT management, the crucial change to factor is that you must now disclose your remuneration policy. This includes the different components in your pay structure, the process of determining employee compensation, and the measures used to evaluate performance. More importantly, you must make sure that the incentives you offer will encourage employees to create more value for unitholders in the form of higher returns. In addition, these incentives cannot be linked to the performance of the REIT Manager or the sponsors.

How should HR comply with the regulations?

  1. Document your company’s remuneration policy, including the pay philosophy, pay positioning, and the process of determining compensation for executives
  2. Disclose names and remuneration of the CEO and each director to the nearest thousand, as well as the top 5 executives in bands of S$250k.
  3. Align performance incentives to long-term interest of REIT unitholders, instead of revenue or profit of the Manager.

However, based on the latest compliance study by Aon Hewitt, less than 30% of Singapore-listed REITs have disclosed their executive compensation levels, remuneration policy or performance incentives. HR should understand that this goes beyond compliance—it’s an opportunity to review compensation practices and drive pay for performance.

How to develop a win-win remuneration strategy?

1. Focus on the performance of the REIT, not the REIT Manager.

Any REIT Manager’s remuneration policy is likely to include a base pay and performance incentive. Given these regulations, the incentive portion should be pegged to the performance of the REIT. When unitholders receive higher dividends, employees should receive higher incentives. This means using indicators such as Total Unitholder Return, Distribution per Unit or Net Asset Value to determine incentives.

On the other hand, you should not use the REIT Manager’s revenue as a measure of success. Doing so might encourage employees to find new ways to increase fees, as opposed to maximising returns for unitholders.

2. Include non-financial metrics when evaluating performance.

Most compensation packages include both monetary and non-monetary components. Similarly, the metrics we use to measure employee performance should include both financial and non-financial components.

Apart from financial indicators such as the REIT’s performance, you can include non-financial indicators such as customer satisfaction and retention, employee growth or work processes to obtain a balanced picture.

3. Turn your employees into unitholders.

If your employees are unitholders, they will naturally work to increase the value of the REIT units. One way to do that is by introducing a Long Term Incentive scheme to reward employees for increasing unitholder returns. The incentive? Units in the REIT that he or she manages. 

With their own interests at stake, there’s more reason for employees to work harder to boost distribution yield and unit price appreciation for their REITs.

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Need help developing and implementing a new remuneration strategy for your REIT Managers? Get in touch with us.

Jacob Tan

Since joining Aon Hewitt, Jacob has worked with leading companies across Southeast Asia on executive compensation strategy, productivity, and incentives plan design. He had advised many notable companies such as Singtel, Keppel Corp, S P Setia, CIMB, and Stock Exchange of Thailand. His experience includes board evaluations, employee share plan design and implementation, short-term incentives design, Economic Value Added (EVA) incentive plans, productivity benchmarking and executive contracts. He regularly works with Singapore Institute of Directors (SID) on topics regarding corporate governance and executive compensation. He was also a key member of the Best Managed Board Awards and the Singapore Board of Directors Survey.

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