An Empirical Examination of Compensation of REIT Managers

Marc C. Chopin · Ross N. Dickens · Roger M. Shelor

23 citations0/0 files storedJournal of Real Estate Research

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Corporate Finance and Governance Financial Markets and Investment Strategies Auditing, Earnings Management, Governance

Abstract

Principal-agent literature finds that manager and owner incentives can be aligned with performance contingent contracts. We investigate the compensation of Real Estate Investment Trust (REIT) industry executives. The competitive nature of mortgage and equity markets, in conjunction with the corporate tax exemption available when REITs distribute most of their earnings as dividends, is likely to influence the compensation of REIT managers. Executive compensation is modelled as a function of revenues and unexpected profit. After transforming the model to reduce collinearity and hetero-skedasticity, we find compensation to be generally positively related to revenue. We also find unexpected profit to be generally insignificantly related to compensation, but positively related in those cases where it is significant.

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1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1979Moral Hazard and Observability 1990Performance Pay and Top-Management Incentives 1985Corporate performance and managerial remuneration 1985Executive compensation, management turnover, and firm performance 1989Relative Performance Evaluation for Chief Executive Officers 1979Optimal incentive contracts with imperfect information 1990Risk and Return on Real Estate: Evidence from Equity REITs

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2009Rewards and Performance of Swedish Real Estate Firms 1998Executive Compensation in EREITs: EREIT Size is but One Determinant 2011What Influences the Changes in REIT CEO Compensation? Evidence from Panel Data

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