Shareholders Reject Kilroy Realty's Executive Compensation Plan

05/23/2012| 06:50pm US/Eastern

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--For second year in a row, shareholders reject Kilroy's executive compensation plan

--Company says it's "reviewing the issue"

--Analyst calls Kilroy "consistent overpayer"

(Updates throughout.)

 
   By A.D. Pruitt 
   Of  
 

Shareholders in Kilroy Realty Corp. (>> Kilroy Realty Corp) rejected the office and industrial landlord's executive compensation plan which provided Chief Executive and founder John Kilroy with a $6.4 million compensation package, including $5 million in bonus and equity awards.

The vote, held last week during the company's annual meeting, is non-binding. However, it marked the second consecutive year that shareholders rejected Kilroy's compensation package even after the company took steps to address some concerns voiced by investors and proxy governance firms. Kilroy is also the second REIT this week after Simon Property Group Inc. (SPG) to disclose that investors cast a no vote on its compensation agreement.

"The company is aware of the voting results and the Board will be reviewing the issue," a company spokesman said in an emailed statement.

Institutional Shareholder Services and Glass Lewis & Co. called on investors to vote against the plan approved by the company earlier this year because Kilroy didn't make enough strides to link remuneration with performance. "The biggest concern remains; the company has not addressed the underlying problem of whether executive pay is properly aligned to performance," Glass Lewis said in a report. "We do not believe the current structure for granting cash and equity awards properly and sufficiently establishes this link."

The Los Angeles-based company defended its plan in recent filings noting that it changed some provisions based on the shareholder feedback after the last compensation agreement failed to pass muster. Among those changes included raising the Chief Executive's retirement age to 70 from 65, while not increasing the 2011 base salaries. The minimum stock ownership guidelines for the CEO and other directors were also increased. Analysts note that Kilroy has long grappled with investor angst about executive pay.

"Kilroy has been a consistent overpayer relative to the size and performance of the company," says Lukas Hartwich, an analyst at Green Street Advsiors.

Kilroy's equity market capitalization is roughly $3 billion. The stock closed up 21 cents to $46.33 Wednesday and is up 21.7% in the year to date compared to 8.47% for the overall REIT market.

-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; angela.pruitt@dowjones.com

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