Analysis: Which Property Chief Execs Earn Their Pay Packet?

The average pay of European listed property chief executives is €2.3M (£2M). By any objective measure that is high compared to most of society. But are these top executives worth it?

That is the question analysts at Green Street Advisors asked in its most recent Pan-European CEO Compensation Report.

The report analysed the compensation of the chief executives at the 41 European listed companies it covers, looking at measures including the balance between fixed and variable pay, how pay compared to the size of the company and the returns it made, and alignment with shareholders.

So which of the top execs in the sector had earned their £2M (and in some cases a lot, lot more) and which hadn’t?

When pay was adjusted to take into account the size of the firm, the chief executives of Shaftesbury in London, Gecina in Paris and Fabege in Sweden provide good value for the money, Green Street said.

It added that when compared to peers, Shaftesbury’s Brian Bickell, and Fabege’s Christian Hermelin “look underpaid relative to how well they have performed”. Bickell is paid €2M when base salary and average share incentives are combined, and Hermelin €629K, the fourth lowest in the sector.

Other U.K. companies where Green Street said that remuneration was easier to justify were Unite and Safestore.

Alignment of chief executives with shareholders was as important as levels of pay compared to returns, Green Street said. It defines alignment as the proportion of pay linked to returns combined with how many shares in the company the chief executive owns. Green Street suggests chief executives should own shares in the company worth at least five times their base salary.

U.K. companies dominate the top end of the list of companies with the best alignment, and Green Street pointed out that U.K. companies are a lot more transparent about pay and aligned with shareholders than their continental peers. The top companies were Great Portland Estates, Derwent London, British Land, Big Yellow and Shaftesbury.

As an aside, Derwent London’s John Burns is the Sir Alex Ferguson of the listed property sector, having been in charge of the company for 34 years.

Green Street pointed out that in the short term, better alignment did not necessarily produce better returns, with Great Portland and British Land for instance having underperformed companies where alignment is described as poor. But it added that alignment paid off in the longer term.

At the other end of the scale, there were companies where remuneration was described as more difficult to justify. The company that stood out against its peers was U.K.-listed pan-European industrial investor Hansteen, principally because of the sheer size of the pay packet of co-founders Morgan Jones and Ian Watson.

The duo are paid €21.6M when base salary and share-based incentives are combined, an amount that Green Street called “off-the-chart high and difficult to justify” when adjusted for its size and its performance versus its peers. That is more than four times higher than the next best-paid chief executive, Spanish REIT Merlin’s Ismael Clemente, who is paid €4.7M.

Watson and Jones’ high pay came about because the company’s long-term incentive plan allows for unlimited share-based bonuses if the share price has risen, even if the company has underperformed peers, and Hansteen made one of these payouts in 2015.

Green Street said there was not much shareholders could do about this, given this incentive plan had now expired. “But it should be a lesson for boards and investors in the industry to not allow such generous and uncapped plans in the future.”

Other companies cited where remuneration was harder to justify were the aforementioned Merlin and German multifamily giant Vonovia.

Four companies with poor alignment between chief executive and shareholders, where shareholders should consider trying to take action, were Deutsche EuroShop, Deutsche Wohnen, Icade and Kungsleden.

One fact Green Street did not point out — just two of the 41 chief executives are women.