Date of Completion

2024

Document Type

Honors College Thesis

Department

Finance

Thesis Type

Honors College

First Advisor

Dr. Andrew Prevost

Keywords

Compensation, Performance, REIT, Firm Valuation, FFO

Abstract

This paper argues that real estate investment trust (REIT) CEO annual compensation is positively correlated with future firm operational performance and firm valuation as measured by funds from operations (FFO) and Tobin’s q respectively. Additionally, the paper argues that cumulative CEO equity incentives, measured by stock and option delta, is positively correlated with future firm valuation. Previous literature suggests salary should not affect future performance, bonus will have a positive effect on future firm operational performance, and equity will have a positive effect on future firm valuation. When compensation is broken into its constituent parts—salary, bonus, and equity—annual salary is positively correlated to future performance, annual bonus is negatively correlated to future performance, and annual equity has no statistically significant effect on future performance. When annual option compensation is isolated from the total equity compensation, it is positively correlated with firm valuation. Cumulative CEO equity incentives are positively correlated with firm valuation. These findings deviate from previously accepted beliefs regarding the effects of REIT CEO compensation structures.

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

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