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CEO Compensation and Performance in Real Estate Investment Trusts (REITs)
Thompson, Sam
Thompson, Sam
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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.
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2024-01-01
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Thesis_Final.pdf
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