That long awaited pay raise may be just around the corner for many retail real estate executives, according to a just-released survey by Specialty Consultants Inc. (SCI) of Pittsburgh. In fact, industry compensation packages are up 4.6 percent, the firm says.
Executive pay is following a “very vigorous market,” says Paul J. Lewis, SCI managing director. “As a by-product, you have companies that are generating more earnings and in turn are generating more competition for talent.”
And it's been a long wait. “For 2001 and a good portion of 2002 there was very little demand for executive talent of any type, particularly in real estate,” says Craig Rowley, the Dallas-based vice president of the national retail practice at compensation consultant Hay Group.
Since the fall of 2003, however, exec pay has rebounded. SCI finds Southern California, the Southwest and the mid-Atlantic leading the pack, with the Midwest and Southeast lagging somewhat. “There are still probably more people than there are jobs,” says Rowley, “but the people who are really good are in demand. Companies are trying to grow and they're out looking for talent to support their growth.”
Who's getting the biggest raises? SCI cautions against combing out its results too finely. But at the 50th percentile, development directors and directors of site acquisition and approval saw the best gains in 2004, both with 5.5 percent. Competition for sites may be driving demand for those skills. “The industry has grown dramatically and there may be some amount of shortage of talent in this area,” Lewis says.
At the 50th percentile, the smallest base-pay raises went to regional property and asset managers with 4.3 percent, property vice presidents with 4.2 percent and senior construction managers at 4.1 percent.
On the bonus side, however, the biggest increases went to two of those laggard on the base-pay side. Regional property and asset managers got a 10 percent bonus increase at the 50th percentile. Property management VPs were next at 8.3 percent.
In absolute dollars, those bonus boosts are tiny — $1,000 and $2,000 respectively. But the gains may reflect pressure on property managers for greater curb appeal as mall owners spruce up existing properties to lift returns or add to the property's sale value, says Lewis.
Oddly, demand for help at the top is greater than in the rest of the retail organization. A recent spate of changes in retailer strategy has led to churn in senior management, so hiring at executive levels is stronger than at lower levels, Rowley says. “Usually, in a recovery you see that lower end pick up a little faster,” he notes, “but people are just being very hesitant about adding staff.”
Rising interest rates could dampen pay raises by dulling consumer spending and slowing retail expansion. Nevertheless, redevelopment of existing properties may thrive in spite of higher rates. Lenders are more likely to fund redevelopment of existing projects with good track records than to risk money on new builds, Lewis says.
Growing importance of mall redevelopment means the optimal skill mix is changing for retail development executives. Redevelopment execs who can conceptualize new images and tenant-merchandising mixes can command higher pay, says Lewis.
A leasing VP with strong deal-making skills to help freshen tenant mixes may get more than $250,000 in base pay and another $150,000 or more in incentives. Development VPs with a vision for mall makeovers and re-tenanting are “very high in demand,” adds Lewis, and command base pay up to $200,0000 and up to $150,000 in incentives.
Retail executives may indeed need to broaden their experience as the lines blur between the sectors: Specialty stores are opening in regional malls, power centers and strips. Some big-box stores are linking with regional malls as well as power centers. “People who understand the broad real estate market and how to play one off the other will be the ones who have the most value in the market,” predicts Rowley.
Goodbye, Options
Meanwhile, bonus lovers can say goodbye to stock options, a longtime staple for executives. At Rouse Co. in Columbia, Md., for example, CEO Anthony W. Deering received options for 970,983 shares last year, when the Real Estate Investment Trust's earnings nearly doubled to $260.6 million. Deering's base salary is about $900,000.
However, in the wake of widespread corporate abuse elsewhere, the Federal Accounting Standards Board (FASB) wants companies to expense stock options to give shareholders greater transparency. Expensing would sharply limit options' use because it would slice off profits companies could report.
An appeal to Congress by defenders of stock options is under way, but don't hold your breath. “Most executives can probably expect to see some sort of change in how equity is granted,” Rowley says. Likely alternatives are cash plans and restricted stock awards.The fading of stock options makes it a good time to recalibrate your compensation structure, which may have gone off whack in the booming '90s and subsequent recession.
Consultant Paul Dorf thinks companies should exploit the slow recovery: Take the time to fit pay scales and incentives to corporate strategy in preparation for the next hiring boom, says Dorf. “So that when the market does heat up and and goes crazy we're not going to be scrambling and throwing money.”
Dorf, managing director of Compensation Resources Inc. in Upper Saddle River, N.J., thinks firms spend more than they should to hold on to top performers who are threatening to jump ship.
Companies should “step back and look at what they are trying to achieve,” says Dorf. “What are their goals business-wise and how is compensation being used to drive that?”
At General Growth Properties Inc. of Chicago, for example, all employees get a bonus — but only when return for the year exceeds the company's cost of capital, typically about 9 percent. The scheme, says CEO John Bucksbaum, “puts the shareholder first.” Cost of capital is a better peg than share price because “sometimes stock goes up even when earnings go down, or vice versa,” Bucksbaum says.
Bucksbaum elects to forgo the bonus, though he and his family — which owns about 25 percent of the shares in the General Growth — do just fine when the company prospers. Incidentally, the General Growth CEO's own circumstance points out a key consideration: compensation is a mind game. It's not only how much people get. It may be how much their CEO doesn't get. Bucksbaum's modest $225,000 base pay — no bonus, no options — ”doesn't go unnoticed by our employees,” he maintains.
By comparison, at competitor Simon Property Group Inc., CEO David Simon's 2003 package was $800,000 in base pay plus $1.4 million in restricted stock. Simon Chief Operating Officer Richard S. Sokolov received $600,000 in base pay, a $500,000 bonus and $1.1 million in restricted stock.
When General Growth employees note such numbers for top officers elsewhere, says Bucksbaum, “I think it makes them feel good about where they are.”
Not to fault “justifiable salaries,” he adds, but “there's probably no program that is going to keep somebody if their sole interest is looking for where they can be paid the most.”
In short, money alone may not be enough. But it sure helps.
HOW SCI'S STUDY WAS CONDUCTED
SCI contacted a representative sample of big retail development firms between January and March 2004, sending questionnaires through the post and by e-mail and conducting in-person and telephone interviews. Results for each position are based on at least 50 respondents. SCI checked survey responses against W-2 and 1099 forms it received from some participants.
WHERE DO YOU STAND?
| POSITION | BASE SALARY | INCENTIVES | ||||
|---|---|---|---|---|---|---|
| 25TH PERCENTILE | 50TH PERCENTILE | 75TH PERCENTILE | 25TH PERCENTILE | 50TH PERCENTILE | 75TH PERCENTILE | |
| President/Chief Executive Officer | $183,000 | $251,000 | $392,000 | $50,000 | $82,000 | $131,000 |
| Vice President of Development | $143,000 | $189,000 | $256,000 | $13,000 | $85,000 | $169,000 |
| Director of Development | $100,000 | $116,000 | $136,000 | $13,000 | $38,000 | $58,000 |
| Vice President of Leasing | $156,000 | $194,000 | $256,000 | $51,000 | $120,000 | $162,000 |
| Senior Leasing Executive | $84,000 | $110,000 | $135,000 | $14,000 | $37,000 | $63,000 |
| Vice President of Construction | $134,000 | $160,000 | $199,000 | $31,000 | $59,000 | $115,000 |
| Senior Construction Manager | $84,000 | $102,000 | $133,000 | $13,000 | $22,000 | $44,000 |
| Vice President of Property Management | $109,000 | $150,000 | $193,000 | $16,000 | $26,000 | $47,000 |
| Regional Property/Asset Manager | $71,000 | $96,000 | $120,000 | $7,000 | $11,000 | $19,000 |
| Director of Site Acquisitions/Approvals | $84,000 | $116,000 | $152,000 | $21,000 | $33,000 | $62,000 |
| Source: Specialty Consultants Inc. | ||||||