Regardless of the number of shares you own, your vote is important. Please read the Proxy Statement carefully, then complete, sign and return your Proxy Card in the enclosed envelope. You may also authorize a proxy to vote via telephone or the Internet. Just follow theInternet if you prefer by following instructions on the enclosed card.Proxy Card.
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1.Date: | Thursday, June 1, 2017 |
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| Time: | 8:30 a.m., Eastern Time |
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| Place: | 1775 Eye Street, N.W., Suite 1000, Washington, D.C. 20006 |
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| Record Date: | The trustees have fixed the close of business on March 15, 2017, as the record date for determining holders of shares entitled to notice of and to vote at the Annual Meeting or at any postponement or adjournment thereof. |
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Items of Business: | 1. To consider and vote upon an amendment to the Articles of Amendment and Restatement to declassify the Board of Trustees (the “Board”); 2. To consider and vote upon an amendment to the Articles of Amendment and Restatement to enable our shareholders to amend the bylaws; 3. To elect twothree trustees to serve until the annual meeting of shareholders in 20172020 and until their successors arehave been duly elected and qualify; |
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2. | To consider and vote upon ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2014; |
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3. | 4. To consider and vote on a non-binding, advisory basis upon the compensation of the named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K; 5. To consider and |
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4. | vote on a non-binding, advisory basis upon whether the shareholder advisory vote to approve the compensation of the named executive officers should occur every one, two or three years; 6. To consider and vote upon ratification of the appointment of Ernst & Young LLP as the our independent registered public accounting firm for 2017; and 7. To transact such other business as may properly come before the meeting. |
The trustees have fixed the close of business on March 14, 2014, as the record date for determining holders of shares entitled to notice of and to vote at the Annual Meeting.
Our Annual Report, Proxy Statement and a Proxy Card accompany this Notice.
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| Proxy Voting: | You are requested, whether or not you plan to be present at the Annual Meeting, to vote, sign and promptly return the Proxy Card. Alternatively, you may authorize a proxy to vote by telephone or the Internet, if you prefer. To do so, you should follow the instructions on the Proxy Card. |
Regardless of the number of shares you hold, as a shareholder your role is very important, and the Board strongly encourages you to exercise your right to vote. Pursuant to the U.S. Securities and Exchange Commission’s “notice and access” rules, our Proxy Statement and 2016 Annual Report to Shareholders are available online at www.edocumentview.com/wre.
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| By order of the Board of Trustees: | |
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/s/ Laura M. FranklinKelly N. Shiflett | |
Laura M. FranklinKelly N. Shiflett | |
| Corporate Secretary | |
| Washington, D.C. |
| April __, 2017 |
TABLE OF CONTENTS
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| PageTABLE OF CONTENTS |
Proxy Statement | |
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GeneralPROPOSAL 1: AMENDMENT TO THE ARTICLES OF AMENDMENT AND RESTATEMENT TO DECLASSIFY THE BOARD OF TRUSTEES AND PROVIDE FOR ANNUAL ELECTION OF TRUSTEES | |
| Description of Proposal | |
| Voting Matters | |
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Board of Trustees and Management | |
Board and Committee Matters | |
Trustee Compensation | |
Trustee BackgroundRecommendation | |
Management BackgroundPROPOSAL 2: AMENDMENT TO THE ARTICLES OF AMENDMENT AND RESTATEMENT TO ENABLE SHAREHOLDERS TO VOTE TO AMEND THE BYLAWS | |
| Description of Proposal | |
| Voting Matters | |
| Recommendation | |
| PROPOSAL 3: ELECTION OF TRUSTEES | |
| Description of Proposal | |
| Voting Matters | |
| Recommendation | |
| CORPORATE GOVERNANCE AND BOARD MATTERS | |
Ownership of Common Shares by Board Composition | |
Trustees and | |
| Board Governance | |
| Committee Governance | |
| Trustee Nominee Consideration | |
| Other Governance Matters | |
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| Executive Officers | |
Ownership of Common Shares by Certain Beneficial Owners | |
| Trustee and Executive Officer Ownership | |
Executive Compensation5% Shareholder Ownership | |
| PROPOSAL 4: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION | |
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| CD&A Executive Summary | |
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Compensation DiscussionObjectives and Components | |
| 2016 Omnibus Incentive Plan | |
| Role of Compensation Consultant and Peer Group Analysis | |
Compensation Tables | |
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| Other Executive Compensation Components | |
| Policies Applicable to Executives | |
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| COMPENSATION TABLES | |
| Summary Compensation Table | |
| Total Direct Compensation Table | |
| Grants of Plan-Based Awards | |
| Outstanding Equity Awards at Fiscal Year-End | |
| 2016 Option Exercises and Stock Vested | |
| Non-Qualified Deferred Compensation | |
| Supplemental Executive Retirement Plan | |
| Potential Payments upon Change in Control | |
Compensation Policies and Risk ManagementPROPOSAL 5: ADVISORY VOTE ON FREQUENCY OF ADVISORY VOTE ON SAY-ON-PAY VOTE | |
Compensation Committee Interlocks and Insider ParticipationDescription of Proposal | |
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Audit CommitteeVoting Matters | |
| Recommendation | |
| PROPOSAL 6: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
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| ACCOUNTING/AUDIT COMMITTEE MATTERS | |
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| Audit Committee Report | |
Principal Accounting Firm Fees | |
Pre-Approval Policies and Procedures | |
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Proposal 1: ElectionShareholder Proposals for Our 2018 Annual Meeting of TrusteesShareholders | |
Description of Proposal | |
Voting Matters | |
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Proposal 2: Ratification of Auditor | |
Description of Proposal | |
Voting Matters | |
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Proposal 3: Executive Compensation Advisory Vote | |
Description of Proposal | |
Voting Matters | |
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Other Matters | |
| Section 16(a) Beneficial Ownership Reporting Compliance | |
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Code of Ethics | |
Corporate Governance Guidelines | APPENDIX A - Amendment to the Articles of Amendment and Restatement to Declassify the Board of Trustees and Provide for Annual Election of Trustees |
SolicitationAPPENDIX B - Amendment to the Articles of ProxiesAmendment and Restatement to Enable Shareholders to Vote to Amend the Bylaws | |
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Householding of Annual Meeting Materials | |
2015 Annual Meeting | 441775 Eye Street, N.W.
Suite 1000
Washington, D.C. 20006
202-774-3200 www.washreit.com |
April __, 2017
WASHINGTON REAL ESTATE INVESTMENT TRUSTPROXY STATEMENT
6110 Executive Boulevard, Suite 800QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Rockville, Maryland 20852Why am I receiving this Proxy Statement?
PROXY STATEMENT
General
This Proxy Statement is furnished by the Board of Trustees (the “Board”) of Washington Real Estate Investment Trust, a Maryland real estate investment trust (“Washington REIT,” “we” or “us”), in connection with its solicitation of proxies for exercise at the 2017 Annual Meeting of Shareholders to be held on May 15, 2014Thursday, June 1, 2017, at 8:30 a.m., Eastern Time, at 1775 Eye Street, N.W., Suite 1000, Washington, D.C. 20006, and at any and all postponements or adjournments thereof.thereof (the "Annual Meeting"). On or about March 28, 2014, 2017, we mailed a Shareholder Meeting Notice (includingtogether with an Important Notice Regarding the Availability of Proxy Materials)Materials (the "Proxy Availability Notice") to shareholders of record as of the close of business on March 14, 2014.15, 2017 (the “Record Date”). This Proxy Statement, the form of Proxy Card and our 2016 Annual Report (the “Annual Report”) are first being furnished to shareholders on or about , 2017.
The mailing address of our principal executive offices is 1775 Eye Street N.W., Suite 1000, Washington, D.C. 20006. We maintain a website at March 28, 2014www.washreit.com. Information on or accessible through our website is not and should not be considered part of this Proxy Statement.
Voting Matters
All properly executed proxiesYou should rely only on the information provided in this Proxy Statement. No person is authorized to give any information or to make any representation not contained in this Proxy Statement, and, if given or made, you should not rely on that information or representation as having been authorized by us. You should not assume that the information in this Proxy Statement is accurate as of any date other than the date of this Proxy Statement or, where information relates to another date set forth in this Proxy Statement, then as of that date.
Why didn't I automatically receive a paper copy of the Proxy Card and Annual Report?
Pursuant to rules adopted by the U.S. Securities and Exchange Commission (the "SEC"), we have elected to provide access to our proxy materials via the Internet. Accordingly, rather than paper copies of all of our proxy materials, we sent the Shareholder Meeting Notice and Proxy Availability Notice to our shareholders.
What is the purpose of the Annual Meeting?
At the Annual Meeting, shareholders will be votedasked to vote upon the matters set forth in accordance with the instructions contained therein. If no instructions are specified, proxies will be voted FORaccompanying notice of annual meeting, including amendments to Washington REIT’s Articles of Amendment and Restatement to declassify the board and to enable shareholders to vote to amend the bylaws, the election of the trustee nominees listedtrustees, an advisory resolution on named executive officer compensation, an advisory vote on the Proxy Card, FORfrequency of the advisory resolution on named executive officer compensation, the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2014 and FOR approval of the compensation of our named executive officerssuch other business as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K. All proxies will be voted in the discretion of the proxy holders on any other matter tomay properly come before the meeting unless otherwise instructedand at any postponement or adjournment thereof.
May I attend the meeting?
All shareholders of record of common shares at the close of business on the Proxy Card.Record Date, or their designated proxies, are authorized to attend the Annual Meeting. Each shareholder and proxy will be asked to present a valid government-issued photo identification, such as a driver’s license or passport, before being admitted. If you are not a shareholder of record but you hold your shares in “street name” (i.e., your shares are held in an account maintained by a bank, broker or other nominee), then you should provide proof of beneficial ownership on the Record Date, such as your most recent account statement, a copy of the voting instruction card provided by your broker, trustee or nominee, or other similar evidence of ownership.
Who is entitled to vote at the Annual Meeting?
The close of business on March 15, 2017 has been fixed as the Record Date for the determination of shareholders entitled to receive notice of and to vote at the Annual Meeting. Our voting securities consist of common shares of beneficial interest, $0.01 par value per share (“common shares”), of which 75,053,128 common shares were outstanding at the close of business on the Record Date. Washington REIT has no other outstanding voting security. Each common share outstanding as of the close of business on the Record Date will be entitled to one vote on each matter properly submitted at the Annual Meeting.
What constitutes a quorum?
The presence, in person or by proxy, of shareholders entitled to cast a majority of all the votes entitled to be cast at the Annual Meeting on any matter will constitute a quorum at the Annual Meeting. Shareholders do not have cumulative voting rights. Abstentions and broker non-votes, if any, are counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting. A broker non-vote occurs when a broker holding shares for a beneficial owner does not authorize a proxy to cast a vote with respect to a particular proposal because the broker does not have discretionary voting power with respect to that matter and has not received voting instructions from the beneficial owner. If that happens, the broker may vote those shares only on matters deemed "routine" by the New York Stock Exchange (the "NYSE"), the exchange on which our common shares are listed. On non-routine matters, nominees holding shares for a beneficial owner cannot vote without instructions from the beneficial owner, resulting in a so-called "broker non-vote."
Proposal 6 (Ratification of Ernst & Young LLP) is the only proposal that is considered "routine" under the NYSE rules. Accordingly, no broker non-votes will arise in the context of voting for the ratification of the appointment of Ernst & Young
LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2017, and the broker is permitted to vote your shares on such ratification even if the broker does not receive voting instructions from you. The treatment of abstentions and broker non-votes and the vote required to approve each proposal are set forth under each proposal below under the caption “Voting Matters.Matters” under each proposal below.
How do I vote?
Voting by Proxy for Shares Registered Directly in the Name of the Shareholder
If you are a “registered shareholder” and hold your common shares in your own name as a holder of record with our transfer agent, Computershare Trust Company, N.A., you may instruct the proxy holders named in the Proxy Card how to vote your common shares in one of the following ways:
Vote by Internet. You may vote via the Internet by following the instructions provided on your Proxy Card. The website for Internet voting is printed on your Proxy Card. Internet voting is available 24 hours per day until 11:59 p.m., Eastern Time on May 31, 2017. To vote online, you will be asked to enter your control number(s) to ensure the security of your vote. You will find your control number on your Proxy Card received with your Proxy Statement.If you vote by Internet, you do not need to return your Proxy Card.
Vote by Telephone.You also have the option to vote by telephone by calling the toll-free number listed on your Proxy Card. Telephone voting is available 24 hours per day until 11:59 p.m., Eastern Time, on May 31, 2017. When you call, please have your Proxy Card in hand. You will receive a series of voice instructions that will allow you to vote your common shares. You will also be given the opportunity to confirm that your instructions have been properly recorded. If you vote by telephone, you do not need to return your Proxy Card.
Vote by Mail.If you received printed materials, and would like to vote by mail, then please mark, sign and date your Proxy Card and return it promptly to our transfer agent, Computershare Trust Company, N.A., in the postage-paid envelope provided. If you did not receive printed materials and would like to vote by mail, you must request printed copies of the proxy materials by following the instructions on the Proxy Availability Notice.
Voting by Proxy for Shares held in “Street Name”
If your common shares are held in “street name” (i.e., through a broker, bank or other nominee), then you will receive instructions from your broker, bank or other nominee that you must follow in order to have your common shares voted. The materials from your broker, bank or other nominee will include a Voting Instruction Form or other document by which you can instruct your broker, bank or other nominee how to vote your common shares.
What am I being asked to vote on?
You are being asked to consider and vote on the following proposals:
Proposal 1 - Amendment to the Articles of Amendment and Restatement to Declassify the Board of Trustees and Provide for Annual Election of Trustees - page 6 below: To consider and vote on an amendment to our Articles of Amendment and Restatement to declassify the Board and provide for annual elections of our trustees (the “Declassification Amendment”).
Proposal 2 - Amendment to the Articles of Amendment and Restatement to Enable Shareholders to Vote to Amend the Bylaws - page 8below:To consider and vote on an amendment to our Articles of Amendment and Restatement to enable our shareholders to vote to amend our bylaws (the “Shareholder Voting Amendment”).
Proposal 3 - Election of Trustees) - page 9below:To elect three trustees to the Board to serve until the annual meeting of shareholders in 2020 and until their successors have been duly elected and qualify. If the Declassification Amendment is approved at the Annual Meeting, the trustees nominated at the Annual Meeting, and all future annual meetings, will each be elected for a one year term and, beginning with the 2019 annual meeting of shareholders when the last term in the currently classified board is scheduled to expire, all members of the Board will be elected annually and, in each case, until his or her respective successor is duly elected and qualifies.
Proposal 4 (Advisory Vote on Named Executive Officer Compensation) - page 28below:To consider and vote on a non-binding, advisory basis upon the compensation of the named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K (“Say-on-Pay vote”).
Proposal 5 (Advisory Vote on Frequency of Advisory Vote on Named Executive Officer Compensation) - page 60below:To consider and vote, on a non-binding, advisory basis upon whether the shareholder advisory vote to approve the compensation of the named executive officers should occur every one, two or three years.
Proposal 6 (Ratification of Appointment of Ernst & Young LLP) - page 62 below:The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2017.
We are not currently aware of any other matter to be presented at the Annual Meeting other than those described in this Proxy Statement. If any other matter not described in the Proxy Statement is properly presented at the Annual Meeting, any proxies received by us will be voted in the discretion of the proxy holders.
What are the Board’s voting recommendations?
The Board recommends that you vote as follows: FORthe Declassification Amendment, FOR the Shareholder Voting Amendment, FOR the election of the trustee nominees listed on the Proxy Card, FOR approval of the compensation of our named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, for holding the Say-on-Pay vote every 1 YEAR, and FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017. All properly executed proxies will be voted in accordance with the instructions contained therein. If no instructions are specified, proxies will be voted in accordance with the Board's
recommendations above. All proxies will be voted in the discretion of the proxy holders on any other matter to come before the meeting, unless otherwise instructed on the Proxy Card.
What is householding?
If you and other residents at your mailing address own common shares in street name, your broker, bank or other nominee may have sent you a notice that your household will receive only one Annual Report, Notice of Annual Meeting and/or Proxy Statement, unless you have instructed otherwise. This procedure, known as “householding,” is intended to reduce the volume of duplicate information shareholders receive and also reduce our printing and postage costs. If you wish to request extra copies, we will promptly deliver a separate copy of such documents to shareholders who write or call us at the following address or telephone number: Washington Real Estate Investment Trust, 1775 Eye Street, N.W., Suite 1000, Washington, D.C. 20006, Attention: Investor Relations; telephone 202-774-3200. Shareholders wishing to receive separate copies of our Proxy Statement and Annual Report in the future, or shareholders currently receiving multiple copies of the Proxy Statement and Annual Report at their address who would prefer that only a single copy of each be delivered there, should contact their bank, broker or other nominee record holder.
Can I change my vote after I have voted?
You may revoke your proxy at any time prior to its exercise at the Annual Meeting by (1) submitting to the Corporate Secretary, a duly executed Proxy Card bearing a later date or byto the Corporate Secretary, (2) attending the Annual Meeting and voting in person, or signing(3) delivering a writtensigned notice of revocation of the Proxy Card.
Card to our Corporate Secretary at the following address: c/o Corporate Secretary, Washington Real Estate Investment Trust, 1775 Eye Street, N.W., Suite 1000, Washington, D.C. 20006. If you hold your common shares in “street name” (that is, throughare held by a broker, bank or any other nominee),persons holding common shares on your behalf, you must contact that institution to revoke a previously authorized proxy.
Whom should instructI call if I have questions or need assistance voting my shares?
Please call (800) 565-9748 or email info@washreit.com if you have any questions in connection with voting your brokershares.
PROPOSAL 1: AMENDMENT TO THE ARTICLES OF AMENDMENT AND RESTATEMENT TO DECLASSIFY THE BOARD OF TRUSTEES AND PROVIDE FOR ANNUAL ELECTION OF TRUSTEES
Description of Proposal
Our Articles of Amendment and Restatement currently provide that our Board is classified into three groups of trustees, with each class of trustees serving staggered, three-year terms so that the term of office of a single class expires each year.
The Board has proposed that Section 5.2 of the Articles of Amendment and Restatement be revised to declassify the Board. The full text of the Declassification Amendment is set forth as Appendix A to this proxy statement. The purpose of this amendment is to declassify the Board and provide that each trustee serves for a one year term in order to bring Washington REIT’s governance structure into line with more shareholder-favorable market practice, thereby enhancing the rights of shareholders and improving Washington REIT’s corporate governance to maximize accountability to shareholders. Specifically, under the proposed amendment to the Articles of Amendment and Restatement:
all directors elected or nominee howappointed at or after the Annual Meeting will serve for terms expiring at the next annual meeting of shareholders, so that, beginning at the 2019 annual meeting of shareholders, the Board will no longer be divided into classes and all trustees will be elected to serve for one-year terms expiring at the next annual meeting of shareholders;
all trustees currently in office whose terms are scheduled to expire at the 2018 and 2019 annual meetings of shareholders will continue to serve their remaining terms; and
any trustee chosen as a result of a newly-created trusteeship or to fill a vacancy on the Board after the Annual Meeting will hold office for a term expiring at the next annual meeting of shareholders.
The Board considered the benefits of classified boards, which include that classified boards may foster stability and continuity with respect to long-term planning and in the overall business of a company and that classified boards provide non-management directors with longer terms of office that may enhance their independence from management. Additionally, classified boards may encourage potential acquirors to initiate arms-length discussions with a board, instead of engaging in takeover attempts, as classified boards limit an acquiror’s ability to replace an entire board in one election, thereby enabling the board to maximize shareholder value or strive to prevent a takeover that the board believes is not in the shareholder’s best interest However, the election of trustees is the primary means for shareholders to exercise influence over Washington REIT and its policies and to hold trustees accountable. A classified board limits the ability of shareholders to elect all trustees on an annual basis and may discourage proxy contests in which shareholders have an opportunity to vote your shares by followingfor a competing slate of nominees.
While classified boards may increase the directions provided by your broker or nominee.long-term stability and continuity of a board, the Board believes that long-term stability and continuity should result from the annual election of directors, which provides shareholders with the opportunity to evaluate the trustees’ performance, both individually and collectively, on an annual basis.
Our voting securities consist of common shares of beneficial interest, $0.01 par value per share (“common shares”), of which66,624,498 common shares were outstanding
The Corporate Governance/Nominating Committee recommended to the Board, and the Board is submitting, the Declassification Amendment for approval at the close of business on March 14, 2014. Washington REIT has no other outstanding voting security. Each common share outstanding as ofAnnual Meeting. If this proposal is approved by the close of business on March 14, 2014shareholders, the Declassification Amendment will be entitledfiled with the Maryland Department of Assessments and Taxation.
Voting Matters
Under our Articles of Amendment and Restatement, an amendment to one vote. The presence in person or by proxythe Articles of shareholders entitled to castAmendment and Restatement requires the affirmative vote of a majority of all the votes entitled to be cast on the matter. A majority of all votes entitled to be cast means that the number of votes “FOR” a proposal must exceed 50% of all the votes entitled to be cast on the matter. Abstentions and other shares not voted (whether broker non-votes, if any, or otherwise) will have the same effect as votes against the proposal.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE DECLASSIFICATION AMENDMENT, AS DISCLOSED IN THIS PROXY STATEMENT.
PROPOSAL 2: AMENDMENT TO THE ARTICLES OF AMENDMENT AND RESTATEMENT TO ENABLE SHAREHOLDERS TO VOTE TO AMEND THE BYLAWS
Description of Proposal
We are also asking our shareholders to approve the Shareholder Voting Amendment to our Articles of Amendment and Restatement to enable shareholders to have a concurrent right, along with the right of the Board, to vote to amend our bylaws. On February 8, 2017, the Board approved, subject to approval of the Shareholder Voting Amendment by the shareholders, an amendment to Article XIV of our bylaws that will allow for the bylaws to be altered, amended or repealed by the shareholders, by the affirmative vote of a majority of all the votes entitled to be cast on the matter. The Board’s existing right to amend the bylaws was not modified by this bylaw amendment. Prior to this bylaw amendment, as permitted under the Maryland General Corporate Law, our bylaws did not provide shareholders with the ability to amend the bylaws. This bylaw amendment is not required to be approved by our shareholders, but as described below, our existing Articles of Amendment and Restatement also contain a limitation on the ability of our shareholders to vote on bylaw amendments that needs to be amended to enable this bylaw amendment to become operative. As a result, the bylaw amendment will not take effect unless the Shareholder Voting Amendment is approved at the Annual Meeting.
In order for the above-referenced bylaw amendment to become operative, Section 8.2 of our Articles of Amendment and Restatement needs to be amended to enable shareholders to have the right to vote on amendments to the bylaws. The full text of the Shareholder Voting Amendment is set forth as Appendix B to this proxy statement. As described further below, the Shareholder Voting Amendment to our Articles of Amendment and Restatement requires approval of our shareholders. The Corporate Governance/Nominating Committee recommended to the Board, and the Board is submitting, the Shareholder Voting Amendment for approval at the Annual Meeting. If this proposal is approved by the shareholders, the above-referenced bylaw amendment will become effective and the Shareholder Voting Amendment will be filed with the Maryland Department of Assessments and Taxation.
Voting Matters
Under our Articles of Amendment and Restatement, an amendment to the Articles of Amendment and Restatement requires the affirmative vote of a majority of all the votes entitled to be cast on the matter. A majority of all votes entitled to be cast means that the number of votes “FOR” a proposal must exceed 50% of all the votes entitled to be cast on the matter. Abstentions and other shares not voted (whether broker non-votes, if any, or otherwise) will have the same effect as votes against the proposal.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE SHAREHOLDER VOTING AMENDMENT, AS DISCLOSED IN THIS PROXY STATEMENT.
PROPOSAL 3: ELECTION OF TRUSTEES
Description of Proposal
Our Board currently consists of eight trustees (which includes one vacancy resulting from the resignation of Wendelin A. White in August 2016) and, pursuant to our Articles of Amendment and Restatement, is divided into three classes with staggered terms. At each annual meeting, pursuant to our Articles of Amendment and Restatement, our shareholders elect one class of trustees to serve until the expiration of the term associated with such class. Each trustee holds office until his or her successor has been elected and qualifies or the trustee’s earlier resignation, death or removal. Benjamin S. Butcher, Edward S. Civera and Ellen M. Goitia (collectively, the “Trustee Nominees”) have been nominated for election as trustees at the Annual Meeting. If Proposal 1, “Amendment to the Articles of Amendment and Restatement to Declassify the Board of Trustees and Provide for Annual Election of Trustees” is approved by our shareholders at the Annual Meeting, on any matterthe Trustee Nominees will constitutebe elected to serve a quorumone-year term and until his or her successor has been elected and qualifies. When the trustees in the other classes conclude their current term, those trustees (or their successors) will also be elected to serve one-year terms. However, if shareholders do not approve Proposal 1, the Board will remain classified and the terms of the Trustee Nominees will expire at the Annual Meeting. Shareholders doannual meeting of shareholders in 2020.
Messrs. Butcher and Civera are currently serving as trustees and were recommended for nomination for re-election by the members of the Corporate Governance/Nominating Committee. Ms. Goitia was recommended for nomination for election to the Board for the first time by the members of the Corporate Governance/Nominating Committee. For biographical information with respect to Messrs. Butcher and Civera and Ms. Goitia, please refer to “Corporate Governance and Board Matters - Trustees - Trustee Nominees” commencing on page 11below.
Voting Matters
Under our bylaws, the uncontested election of the trustees requires the affirmative vote of a majority of the total votes cast for and against such trustee. A majority of votes cast means that the number of votes "FOR" a nominee must exceed the number of votes "AGAINST" that nominee. Abstentions and other shares not voted (whether broker non-votes, if any, or otherwise) will not be counted as votes cast and will have cumulative voting rights.no effect on the result of this vote.
If any of Messrs. Butcher, Civera or Ms. Goitia were to become unable or unwilling to stand for election for any reason not presently known or contemplated, the persons named in the enclosed Proxy Card will have discretionary authority to vote pursuant to the Proxy Card for a substitute nominee nominated by the Board, or the Board, on the recommendation of the Corporate Governance/Nominating Committee, may reduce the size of the Board and number of nominees.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF MESSRS. BUTCHER AND CIVERA AND MS. GOITIA.
CORPORATE GOVERNANCE AND BOARD OF TRUSTEES AND MANAGEMENTMATTERS
Board and Committee Matters
GeneralComposition
The Board currently consists of nineeight trustees (which includes one vacancy resulting from the resignation of Wendelin A. White in August 2016), divided into three classesclasses. The current members of three trustees each. We currently have oneour Board are Benjamin S. Butcher, William G. Byrnes, Edward S. Civera, Paul T. McDermott, Charles T. Nason, Thomas H. Nolan, Jr., and Vice Adm. Anthony L. Winns (RET.). Mr. Nason serves as Chairman of the Board. This vacancy on the Board due toresulting from the resignation of Terence C. Golden, which occurred on March 11, 2013. The Board expects to determine to either fill such vacancy inMs. White will be filled by the coming months or reduceelection of Ms. Goitia if she is elected at the size of the Board to eliminate such vacancy.
Annual Meeting. The terms of the currentcontinuing trustees continue until the Annual Meetingsannual meetings to be held in 2014, 20152018 and 2016,2019 and until their successors are duly elected and qualify. At
Trustees
The following table sets forth the names and biographical information concerning each annual meeting, trustees are electedof our trustee nominees and our continuing trustees.
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| NAME | PRINCIPAL OCCUPATION | SERVED AS TRUSTEE SINCE | AGE | TERM EXPIRES (1) |
| Trustee Nominees | | | | |
| Benjamin S. Butcher | Chief Executive Officer, President and Chairman of the Board of Directors of STAG Industrial, Inc. | 2014 | 63 | 2017 |
| Edward S. Civera | Retired Chairman, Catalyst Health Solutions, Inc. | 2006 | 66 | 2017 |
Ellen M. Goitia (2) | Retired Partner, KPMG | — | 57 | — |
| Continuing Trustees | | | | |
| Charles T. Nason | Chairman, Washington REIT; Retired Chairman, President and Chief Executive Officer, The Acacia Group | 2000 | 70 | 2018 |
| Thomas H. Nolan, Jr. | Chairman of the Board and Chief Executive Officer of Spirit Realty Capital Inc. | 2015 | 59 | 2018 |
| Vice Adm. Anthony L. Winns (RET.) | President, Middle East-Africa Region, Lockheed Martin Corporation | 2011 | 61 | 2018 |
| William G. Byrnes | Retired Managing Director, Alex Brown & Sons | 2010 | 66 | 2019 |
| Paul T. McDermott | President and Chief Executive Officer, Washington REIT | 2013 | 55 | 2019 |
(1) If the Declassification Amendment is approved, the Trustee Nominees’ terms will expire in 2018. If the Declassification Amendment is not approved, the Trustee Nominees’ terms will expire in 2020.
(2) Ms. Goitia was nominated to serve on the Board of Trustees on March 16, 2017 but is not yet serving as a Trustee.
Trustee Nominees
The biographical description below for a term of three yearseach nominee includes the specific experience, qualifications, attributes and until their successors are duly elected and qualify. Washington REIT's bylaws provideskills that noled to the conclusion by the Board that such person shall be nominated for electionshould serve as a trustee afterof Washington REIT.
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| Benjamin S. Butcher | Served as Trustee Since 2014 |
| Benjamin S. Butcher serves as the Chief Executive Officer, President and Chairman of the Board of Directors of STAG Industrial, Inc., a position he has held since July 2010. Prior to the formation of STAG Industrial, Inc., Mr. Butcher oversaw the growth of STAG Capital Partners, LLC and its affiliates, serving as a member of their Board of Managers and Management Committees, from 2003 to 2011. From 1999 to 2003, Mr. Butcher was engaged as a private equity investor in real estate and technology. From 1997 to 1998, Mr. Butcher served as a Director at Credit Suisse First Boston, where he sourced and executed transactions for the Principal Transactions Group (real estate debt and equity). From ____ |
1993 to 1997, he served as a Director at Nomura Asset Capital, where he focused on marketing and business development for its commercial mortgage-backed securities group. Mr. Butcher brings the following experience, qualifications, attributes and skills to the Board:
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General business management and strategic planning experience from his service as chief executive of STAG Industrial, Inc. and his previous service with STAG Capital Partners, LLC and its affiliates;
REIT industry experience from his service as chief executive of STAG Industrial, Inc. since July 2010;
Real estate investment banking and capital markets experience from his five years as an investment banker with Credit Suisse First Boston and Nomura Asset Capital; and
Financial and accounting acumen from his five years in investment banking, his experience as a private equity investor and with STAG Capital Partners, LLC, and his service as a public company executive with STAG Industrial, Inc.
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| Edward S. Civera | Served as Trustee Since 2006 |
| Edward S. Civera served as the Chairman of the Board of Catalyst Health Solutions, Inc., a publicly traded pharmacy benefit management company (formerly known as HealthExtras, Inc.), from 2005 until his retirement in December 2011. In 2012, he served as a senior advisor to management and the Board of Directors of Catalyst Health Solutions in connection with the sale of the company. Mr. Civera also served as Chairman of the MedStar Health System, a multi-institutional healthcare organization until his retirement from the board in November 2013. From 1997 to 2001, Mr. Civera was the Chief Operating Officer and Co-Chief Executive Officer of United Payors & United Providers, Inc. __________ |
| (UP&UP), a publicly-traded healthcare company that was sold in 2000. Prior to that, Mr. Civera spent 25 years with Coopers & Lybrand (now PricewaterhouseCoopers LLP), most recently as Managing Partner, focused on financial advisory and auditing services. Mr. Civera is a Certified Public Accountant. Mr. Civera has also served as a director of The Mills Corporation, MCG Capital Corporation and Notre Dame of Maryland University. Mr. Civera brings the following experience, qualifications, attributes and skills to the Board: |
General business management and strategic planning experience from his ten years as a public company chief executive or chairman at UP&UP and Catalyst Health Solutions;
REIT industry experience from his involvement as an independent director of The Mills Corporation from 2005 to 2006 leading its reorganization and sale as Chairman of the Special Committee and Executive Committee;
Office real estate industry experience from his involvement in real estate matters as Chairman of MedStar Health;
Financial and accounting acumen from his 26 years in public accounting and his service as a public company chief executive; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C./Baltimore corridor for 28 years.
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| Ellen M. Goitia | Nominated in March of 2017 |
| Ellen M. Goitia is a Certified Public Accountant and served as the partner-in-charge for KPMG LLP’s (KPMG) Chesapeake Business Unit Audit practice and a member of the firm’s audit leadership team from October 2011 until her retirement in May 2016. As the partner-in-charge of the Chesapeake Business Unit Audit Practice, Ms. Goitia had ultimate operational oversight for five offices in Maryland, DC and Virginia, with responsibilities including business unit financial performance, resource management, human resources, quality client service, and risk management. Ms. Goitia was admitted to the KPMG partnership in 1993 and had more than 30 years of experience as a professional with ____ |
the_firm, including experience as lead audit partner for a variety of publicly traded and private companies. She has served clients on a wide range of accounting and operational issues, public security issuances and strategic corporate transactions. Ms. Goitia was a speaker, panelist and moderator for KPMG’s Audit Committee Institute as well as for other governance programs external to KPMG. In addition, Ms. Goitia served as an independent member of the Nominating Committee of KPMG’s Board of Directors from 2009 until 2011, and has served on several nonprofit organizations’ boards. Ms. Goitia brings the following experience, qualifications, attributes and skills to the Board: |
General business management and strategic planning experience from her 72nd birthday, except5 years as the partner-in-charge of the Chesapeake Business Unit Audit Practice of KPMG and over 30 years as a professional at KPMG;
Understanding of and familiarity with public companies and public company boards from her service as lead audit engagement partner at a major accounting firm;
Public company accounting, financial statements and corporate finance expertise from over 20 years of service as lead audit engagement partner at a major accounting firm; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for over 35 years.
Continuing Trustees
The biographical description below for each continuing trustee includes the specific experience, qualifications, attributes and skills that led to the conclusion by the Board that such person should serve as a trustee of Washington REIT.
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| William G. Byrnes | Served as Trustee since 2010 |
| William G. Byrnes has been a private investor since 2001. He was on the Board of Directors of CapitalSource Inc., a commercial lender operating principally through its subsidiary CapitalSource Bank from 2003 until its sale in April 2014, serving in various capacities including Presiding Independent Director and, most recently, Chairman of the Board. He founded, and was Managing Member of, Wolverine Partners, LLC, that operated MUTUALdecision, a mutual fund research business, from September 2006 to October 2012. Mr. Byrnes was co-founder of Pulpfree d/b/a BuzzMetrics, a consumer-generated media research and marketing firm, and served as its Chairman ___ |
| from June 1999 until its sale in September 2005. He was on the Board of Directors and chairman of the Audit Committee of LoopNet, Inc., an information services provider to the commercial real estate industry, from September 2006 until its sale in April 2012. Mr. Byrnes spent 17 years with Alex Brown & Sons, most recently as a Managing Director and head of the investment banking financial institutions group. He has been a full-time and adjunct professor and member of the Board of Regents at Georgetown University and currently sits on its Entrepreneurship Advisory Group. Mr. Byrnes brings the following experience, qualifications, attributes and skills to the Board: |
Real estate investment banking and capital markets experience from his 17 years as an investment banker with Alex Brown & Sons;
REIT industry experience from his involvement over the last 16 years as an independent director of three publicly-traded REITs and an institutional fund focused on investing in REITs;
Retail and residential real estate industry experience from his involvement as an independent director of Sizeler Property Investors from 2002 to 2006;
Financial and accounting acumen from his 17 years in investment banking and his service as a public company director; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C./Baltimore corridor for 41 years.
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| Paul T. McDermott | Served as Trustee Since 2013 |
| Paul T. McDermott was elected to the Board of Trustees and named President and Chief Executive Officer of Washington REIT in October 2013. Prior to joining Washington REIT, he was Senior Vice President and Managing Director for Rockefeller Group Investment Management Corp., a wholly owned subsidiary of Mitsubishi Estate Co., Ltd. from June 2010 to September 2013. Prior to joining The Rockefeller Group, he served from 2006 to 2010 as Principal and Chief Transaction Officer at PNC Realty Investors. Between 2002 and 2006, Mr. McDermott held two primary officer roles at Freddie Mac -- Chief Credit Officer of the Multifamily Division and Head of Multifamily Structured |
Finance and Affordable Housing. From 1997 to 2002, he served as Head of the Washington, D.C. Region for Lend Lease Real Estate Investments. Mr. McDermott brings the following experience, qualifications, attributes and skills to the Board:
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General business management and strategic planning experience from his service as chief executive of Washington REIT and his previous service as Senior Vice President of Rockefeller Group;
Office, retail and residential real estate industry operating and investment experience from his experience as Senior Vice President of Rockefeller Group, Principal and Chief Transaction Officer at PNC Realty Investors and Chief Credit Officer of the Multifamily Division of Freddie Mac;
Office and residential development experience from his experience as Head of Washington, D.C. Region for Lend Lease Real Estate Investments; and
Extensive familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 55 years.
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| Charles T. Nason | Served as Trustee Since 2000 |
| Charles T. Nason is retired Chairman and Chief Executive Officer of The Acacia Group of Washington, D.C. (including Acacia Life, Acacia Federal Savings Bank and the Calvert Group LTD.), now a member company of the Ameritas Group as a result of the merger of the two organizations in 1999. He served Acacia from 1977 to 2005, including as Chief Executive Officer from 1988 to 2003. Mr. Nason is a past Chairman and director of The Greater Washington Board of Trade and the Federal City Council. He served as a director of MedStar Health from 2001 to 2010 and was a member of the Economic Club of Washington. He is also a member of the Board of Trustees of Washington and Jefferson College,
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and served as its Chairman from 2007 to 2010. In addition, he is a past director of The American Council of Life Insurers and past Chairman of the Insurance Marketplace Standards Association. Mr. Nason brings the following experience, qualifications, attributes and skills to the Board:
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General business management and strategic planning experience from his 15 years as a chief executive of The Acacia Group;
Real estate investment and lending experience from his roles in supervising as chief executive The Acacia Group's real estate purchase and sale decisions, and in supervising as Chairman Acacia Federal Savings Bank's real estate construction and acquisition lending;
Financial and accounting acumen from his 15 years of service as a chief executive of an insurance holding company;
Involvement in the D.C. business community, including past service as Chairman of the Greater Washington Board of Trade; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 28 years.
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| Thomas H. Nolan, Jr. | Served as Trustee Since 2015 |
| Thomas H. Nolan, Jr., serves as Chairman of the Board of Directors and Chief Executive Officer of Spirit Realty Capital, Inc. (NYSE: SRC), positions he has held since September 2011. Mr. Nolan previously worked for General Growth Properties, Inc. ("GGP"), serving as Chief Operating Officer from March 2009 to December 2010 and as President from October 2008 to December 2010. He also served as a member of the board of directors of GGP from 2005 to 2010. GGP filed for protection under Chapter 11 of the U.S. Bankruptcy Code in April 2009 and emerged from bankruptcy in November 2010. Mr. Nolan was a member of the senior management team that led GGP’s ____________
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| reorganization and emergence from bankruptcy, which included the restructuring of $15.0 billion in project-level debt, payment in full of all of GGP’s pre-petition creditors and the securing of $6.8 billion in equity commitments. From July 2004 to February 2008, Mr. Nolan served as a Principal and Chief Financial Officer of Loreto Bay Company, the developer of the Loreto Bay master planned community in Baja, California. From October 1984 to July 2004, Mr. Nolan held various financial positions with AEW Capital Management, L.P., a national real estate investment advisor, and from 1998 to 2004, he served as Head of Equity Investing and as President and Senior Portfolio Manager of The AEW Partners Funds. Mr. Nolan brings the following experience, qualifications, attributes and skills to the Board: |
General business management and strategic planning experience from his service as chief executive of Spirit Realty Capital, Inc. and his previous service with GGP;
REIT industry experience from his service as chief executive of Spirit Realty Capital, Inc. and his previous service with GGP;
Real estate asset management experience in multiple asset classes from his 20 years with AEW Capital Management, L.P.; and
Financial and accounting acumen from his 20 years with AEW Capital Management, L.P., his service as chief executive of Spirit Realty Capital, Inc. and his previous service with GGP.
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| Vice Adm. Anthony L. Winns (RET.) | Served as Trustee Since 2011 |
| Vice Adm. Anthony L. Winns (RET.) is President, Middle East-Africa Region, Lockheed Martin Corporation ("Lockheed"), a position he has held since January 2013. Between October 2011 and January 2013, Mr. Winns was Vice President, International Maritime Programs, at Lockheed. Between July 2011 and October 2011, Mr. Winns was a defense industry consultant. Mr. Winns retired in June 2011 after 32 years of service in the United States Navy. He served as Naval Inspector General from 2007 to his retirement. From 2005 to 2007, Mr. Winns served as Deputy Director, Air Warfare Division for the Chief of Naval Operations. Prior to 2003, Mr. Winns served in other staff and leadership positions
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| in Washington, D.C., including at the Bureau of Naval Personnel. He also served as commanding officer of several major commands, including the Pacific Patrol/Reconnaissance task force, the USS Essex, an amphibious assault carrier, and a naval aircraft squadron. Mr. Winns also serves as a director on the board of the Navy Mutual Aid Association. Mr. Winns brings the following experience, qualifications, attributes and skills to the Board: |
General enterprise management and strategic planning experience from his 10 years of service as a commanding officer of various military units (including a naval vessel) and 11 years of service in senior staff positions in the Pentagon;
Government contracting experience from his three years of service managing U.S. Navy procurement programs as Deputy Director, Air Warfare Division for the Chief of Naval Operations (Washington REIT is a federal contractor and many of Washington REIT's largest tenants and potential future tenants are federal contractors);
Washington, D.C. area defense industry experience from his 16 years of service in staff positions in the Pentagon and current service as President, Middle East-Africa Region, Lockheed Martin Corporation; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 22 years.
Board Governance
Leadership Structure
Our President and Chief Executive Officer is Paul T. McDermott. Charles T. Nason serves as our Chairman of the Board of Trustees and is independent under circumstancesNYSE rules. The Board has concluded that Washington REIT should maintain a Board leadership structure in which either the Chairman or a lead trustee is independent under the rules of the NYSE. As a result, the Board adopted a Corporate Governance Guideline setting forth this policy. The Corporate Governance Guideline is set forth below:
The Board annually elects one of its trustees as Chairman of the Board. The current Chairman of the Board is independent under the rules of the NYSE. In the future, the Chairman of the Board may or may not be an individual who is independent under the rules of the NYSE (and may or may not be the same individual as the Chief Executive Officer). At any time that the Chairman of the Board is not an individual who is independent under the rules of the New York Stock Exchange, the Board will appoint a Lead Independent Trustee elected by the independent trustees. The Lead Independent Trustee has authority to: (i) preside at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent trustees; (ii) serve as a liaison between the Chairman of the Board and the independent trustees; (iii) approve information sent to the Board; (iv) approve meeting agendas for the Board; (v) approve meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi) call meetings
of the independent trustees; and (vii) if requested by major shareholders, consult and directly communicate with such shareholders.
The Board believes the leadership structure described in this Corporate Governance Guideline is appropriate because it ensures significant independent Board leadership regardless of whether, in the bylaws.future, the Chairman is independent under the rules of the NYSE.
Independence
Under NYSE rules, a majority of the Board must qualify as “independent.” To qualify as “independent,” the Board must affirmatively determine that the trustee has no material relationship with us (either directly or as a partner, shareholder or officer of an organization that has a relationship with us).
The Board has determined that all trustees and trustee nominees, with the exception of Mr. McDermott, are “independent,” as that term is defined in the applicable NYSE listing standards.
Washington REIT notes that Lockheed Martin Corporation was a tenant under a commercial lease with Washington REIT entered into in the ordinary course of business through June 2016 (at which time the underlying property was sold by Washington REIT). Mr. Winns serves as an employee of Lockheed Martin but is not an executive officer, board member or 1% shareholder of such company. In addition, payments from Lockheed Martin to Washington REIT under the leasing arrangements were significantly less than 1% of either Washington REIT’s or Lockheed Martin’s 2016 gross revenues. Based on the foregoing, the Board determined no material relationship exists. For the specific reasons set forth above, we believe Mr. Winns is independent under applicable NYSE standards and constitutes an “independent outsider” under applicable Institutional Shareholder Services (ISS) guidance.
Risk Oversight
One of the New York Stock Exchange.key functions of the Board is informed oversight of our risk management process. As an initial matter, the Board considers actual risk monitoring and management to be a function appropriately delegated to Washington REIT management, with the Board and its committees functioning in only an oversight role. Our Board will administer this oversight function directly, with support from its three standing committees, the Audit Committee, Compensation Committee and the Corporate Governance/Nominating Committee, each of which addresses risks specific to their respective areas of oversight. The Board has adopted a policy delineating the roles of the Board and its various committees in an ongoing risk oversight program for Washington REIT, providing that:
the Board will coordinate all risk oversight activities of the Board and its committees, including appropriate coordination with Washington REIT's business strategy;
the Audit Committee will oversee material financial reporting risk and risk relating to REIT non-compliance;
the Compensation Committee will oversee financial risk, financial reporting risk and operational risk, in each case arising from Washington REIT's compensation plans;
the Corporate Governance/Nominating Committee will oversee executive succession risk and Board function risk; and
the Board will oversee all other material risks applicable to Washington REIT, including operational, catastrophic and financial risks that may be relevant to Washington REIT's business.
Under its policy, the Board also involves the Audit Committee in its risk oversight functions as required by applicable NYSE rules.
Meetings
The Board provides a process for shareholders and other interested parties to send communications to the entire Board or to anyheld ten meetings in 2016. During 2016, each incumbent trustee attended at least 75% of the trustees. Shareholders and interested parties may send these written communications c/o Corporate Secretary, Washington Real Estate Investment Trust, 6110 Executive Boulevard, Suite 800, Rockville, Maryland 20852. All communications will be compiled byaggregate of the Corporate Secretary and submitted tototal number of meetings of the Board (held during the period for which he has been a trustee) and the total number of meetings of all committees of the Board on which he served (during the periods that he or the trustees on a periodic basis.
she served). All members of the Board attended the Annual Meeting in 2013.person in 2016. The Board does not have a formal written policy requiring trustees to attend the Annual Meeting, although trustees have traditionally attended.
The Board held ten meetings in 2013. During 2013, each incumbent trustee attended at least 75%Washington REIT's trustees who qualify as “non-management” within the meaning of the total number of meetings of the Board and committees on which he or she served.Washington REIT's non-management trusteesNYSE rules meet without management at regularly scheduled executive sessions thatwithout management participation. The sessions are presided over by Mr. Nason in his capacity as Chairman. In 2013,2016, the Board met in executive session without the Chief Executive Officer fivetimes.
Committee Governance
Our Board has three standing committees, an Audit Committee, a Compensation Committee and a Corporate Governance/Nominating Committee. The membership and the function of each of these committees are described below.
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| | | Audit | | Compensation | | Corporate Governance/Nominating |
| Benjamin S. Butcher | | Ÿ | | Ÿ | | |
| William G. Byrnes | | Chair | | | | Ÿ |
| Edward S. Civera | | Ÿ | | Chair | | |
| Thomas H. Nolan, Jr. | | Ÿ | | | | Ÿ |
| Vice Adm. Anthony L. Winns | | | | Ÿ | | Chair |
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| Number of meetings held during 2016 | | 8 | | 5 | | 3 |
Audit Committee
The Corporate Governance/Nominating Committee met six times in 2013. The Corporate Governance/Nominating Committee members are Chairwoman White and Messrs. McDaniel, Russell and Winns. All members of the Corporate Governance/NominatingAudit Committee are, and were during 2016, “independent,” under NYSE rules. The Board has determined that each member of the Audit Committee qualifies as an audit committee financial expert, as that term is defined in the applicable listing standardsrules of the New York Stock Exchange. SEC.
The Corporate Governance/NominatingAudit Committee performs the duties described in the Corporate Governance/Nominating Committee Charter adoptedoperates pursuant to a charter that was approved by the Board.Board and that is reviewed and reassessed at least annually. The Corporate Governance/NominatingAudit Committee’s oversight responsibility includes oversight relating to: (i) the integrity of Washington REIT’s consolidated financial statements and financial reporting process; (ii) Washington REIT’s systems of disclosure controls and procedures, internal control over financial reporting and other financial information provided by Washington REIT; (iii) Washington REIT’s compliance with financial, legal and regulatory requirements; (iv) the annual independent audit of Washington REIT’s financial statements, the engagement and retention of the registered independent public accounting firm and the evaluation of the qualifications, independence and performance of such independent public accounting firm; (v) the performance of Washington REIT’s internal audit function; and (vi) the fulfillment of the other responsibilities set forth in its charter.
The Audit Committee Charterassists the Board in oversight of financial reporting, but the existence of the Audit Committee does not alter the responsibilities of Washington REIT's management and the independent accountant with respect to the accounting and control functions and financial statement presentation. For a more detailed description of the Audit Committee's duties and responsibilities, please refer to the “Audit Committee Report” below in this Proxy Statement. The Audit Committee’s charter is available on our website, www.writ.com,www.washreit.com, under the heading “Investor” and subheading “Corporate Overview - Corporate Governance,” and upon written request. Among other things, the Corporate Governance/Nominating Committee develops and recommends Corporate Governance Guidelines for Board approval and recommends nominees for election to the Board as outlined in the Corporate Governance/Nominating Committee Charter.
Trustee Selection Process
The Corporate Governance/Nominating Committee's process for the recommendation of trustee candidates, as it exists from time to time, is described in our Corporate Governance Guidelines. Set forth below is a summary of the process that the Corporate Governance/Nominating Committee currently utilizes for the consideration of trustee candidates. The Corporate Governance/Nominating Committee may, in the future, modify or deviate from this process in connection with the selection of a particular trustee candidate.
The Corporate Governance/Nominating Committee develops and maintains a list of potential candidates for Board membership on an ongoing basis. Corporate Governance/Nominating Committee members and other Board members may recommend potential candidates for inclusion on such list. In addition, the Corporate Governance/Nominating Committee, in its discretion, may seek potential candidates from organizations, such as the National Association of Corporate Directors, that maintain databases of potential candidates. As well, shareholders may put forward potential candidates for the Corporate Governance/Nominating Committee's consideration by submitting candidates to the attention of the Corporate Governance/Nominating Committee at our executive offices in Rockville, Maryland. The Corporate Governance/Nominating Committee screens all potential candidates in the same manner regardless of the source of the recommendation.
The Corporate Governance/Nominating Committee reviews the attributes, skill sets and other qualifications for potential candidates (see current attributes, skill sets and other qualifications below) from time to time and may modify
them based upon the Corporate Governance/Nominating Committee's assessment of the needs of the Board and the skill sets required to meet those needs.
When the Corporate Governance/Nominating Committee is required to recommend a candidate for nomination for election to the Board at an annual or special meeting of shareholders, or otherwise expects a vacancy on the Board to occur, it commences a candidate selection process by reviewing all potential candidates against the current attributes, skill sets and other qualifications to determine whether a candidate is suitable for Board membership. This review may also include an examination of publicly available information and consideration of the New York Stock Exchange independence requirement, the number of boards on which the candidate serves, the possibility of interlocks, other requirements or prohibitions imposed by applicable laws, regulations or Washington REIT policies and practices, and any actual or potential conflicts of interest.
The Corporate Governance/Nominating Committee then determines whether to remove any candidate from consideration as a result of the foregoing review. Thereafter, the Corporate Governance/Nominating Committee determines a proposed interview list from among the remaining candidates and recommends such interview list to the Board prior to direct discussion with any candidate.
Following the Board's approval of the interview list, the Chairman of the Corporate Governance/Nominating Committee or, at his or her discretion, other trustees contact and interview the potential candidates on such list. After the completion of candidate interviews, the Corporate Governance/Nominating Committee determines a priority ranking of the potential candidates on the interview list and recommends such priority ranking to the Board.
Following the Board's approval of the priority ranking, the Chairman of the Corporate Governance/Nominating Committee or, at his or her discretion, other trustees contact the potential candidates based on their order in the priority ranking. When a potential candidate indicates his or her willingness to accept nomination to the Board, the recommendation process is substantially complete. Subject to a final review of eligibility under Washington REIT policies and applicable laws and regulations using information supplied directly by the candidate, the Board then nominates the candidate.
The Corporate Governance/Nominating Committee's minimum qualifications and specific qualities and skills required for trustees, as they exist from time to time, are also set forth in our Corporate Governance Guidelines. Our Corporate Governance Guidelines currently provide that each trustee candidate, at a minimum, should possess the following attributes: integrity, business judgment, credibility, collegiality, professional achievement, constructiveness and public awareness. Our Corporate Governance Guidelines also provide that, as a group, the independent trustees should possess the following skill sets and characteristics: financial acumen equivalent to the level of a public company chief financial officer or senior executive of a capital market, investment or financial services firm; operational or strategic acumen germane to the real estate industry or another industry with similar characteristics; public and/or government affairs acumen; corporate governance acumen, gained through service as a senior officer or director of a publicly-owned corporation or comparable academic or other experience; and diversity in terms of both the gender and ethnicity of the individuals involved and their various experiences and areas of expertise.
Policy Regarding Diversity
The Board maintains a policy with regard to consideration of diversity in identifying trustee nominees. In October 2009, the Board revised our Corporate Governance Guidelines to add diversity as one of the five primary skill sets and characteristics that the independent trustees should possess as a group. As a result, consistent with this policy, the Corporate Governance/Nominating Committee specifically considers diversity as a factor in the selection of trustee nominees. As noted above, the Board defines diversity in our Corporate Governance Guidelines in terms of both the gender and ethnicity of the individuals involved and their various experiences and areas of expertise.
The Board and the Corporate Governance/Nominating Committee both assess the policy to be effective insofar as it has been actively incorporated into discussions of the Corporate Governance/Nominating Committee with respect to Board membership occurring since the policy was adopted.
CompensationTrustee Nominees
The biographical description below for each nominee includes the specific experience, qualifications, attributes and skills that led to the conclusion by the Board that such person should serve as a trustee of Washington REIT.
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| Benjamin S. Butcher | Served as Trustee Since 2014 |
| Benjamin S. Butcher serves as the Chief Executive Officer, President and Chairman of the Board of Directors of STAG Industrial, Inc., a position he has held since July 2010. Prior to the formation of STAG Industrial, Inc., Mr. Butcher oversaw the growth of STAG Capital Partners, LLC and its affiliates, serving as a member of their Board of Managers and Management Committees, from 2003 to 2011. From 1999 to 2003, Mr. Butcher was engaged as a private equity investor in real estate and technology. From 1997 to 1998, Mr. Butcher served as a Director at Credit Suisse First Boston, where he sourced and executed transactions for the Principal Transactions Group (real estate debt and equity). From ____ |
1993 to 1997, he served as a Director at Nomura Asset Capital, where he focused on marketing and business development for its commercial mortgage-backed securities group. Mr. Butcher brings the following experience, qualifications, attributes and skills to the Board:
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General business management and strategic planning experience from his service as chief executive of STAG Industrial, Inc. and his previous service with STAG Capital Partners, LLC and its affiliates;
REIT industry experience from his service as chief executive of STAG Industrial, Inc. since July 2010;
Real estate investment banking and capital markets experience from his five years as an investment banker with Credit Suisse First Boston and Nomura Asset Capital; and
Financial and accounting acumen from his five years in investment banking, his experience as a private equity investor and with STAG Capital Partners, LLC, and his service as a public company executive with STAG Industrial, Inc.
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| Edward S. Civera | Served as Trustee Since 2006 |
| Edward S. Civera served as the Chairman of the Board of Catalyst Health Solutions, Inc., a publicly traded pharmacy benefit management company (formerly known as HealthExtras, Inc.), from 2005 until his retirement in December 2011. In 2012, he served as a senior advisor to management and the Board of Directors of Catalyst Health Solutions in connection with the sale of the company. Mr. Civera also served as Chairman of the MedStar Health System, a multi-institutional healthcare organization until his retirement from the board in November 2013. From 1997 to 2001, Mr. Civera was the Chief Operating Officer and Co-Chief Executive Officer of United Payors & United Providers, Inc. __________ |
| (UP&UP), a publicly-traded healthcare company that was sold in 2000. Prior to that, Mr. Civera spent 25 years with Coopers & Lybrand (now PricewaterhouseCoopers LLP), most recently as Managing Partner, focused on financial advisory and auditing services. Mr. Civera is a Certified Public Accountant. Mr. Civera has also served as a director of The Mills Corporation, MCG Capital Corporation and Notre Dame of Maryland University. Mr. Civera brings the following experience, qualifications, attributes and skills to the Board: |
General business management and strategic planning experience from his ten years as a public company chief executive or chairman at UP&UP and Catalyst Health Solutions;
REIT industry experience from his involvement as an independent director of The Mills Corporation from 2005 to 2006 leading its reorganization and sale as Chairman of the Special Committee and Executive Committee;
Office real estate industry experience from his involvement in real estate matters as Chairman of MedStar Health;
Financial and accounting acumen from his 26 years in public accounting and his service as a public company chief executive; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C./Baltimore corridor for 28 years.
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| Ellen M. Goitia | Nominated in March of 2017 |
| Ellen M. Goitia is a Certified Public Accountant and served as the partner-in-charge for KPMG LLP’s (KPMG) Chesapeake Business Unit Audit practice and a member of the firm’s audit leadership team from October 2011 until her retirement in May 2016. As the partner-in-charge of the Chesapeake Business Unit Audit Practice, Ms. Goitia had ultimate operational oversight for five offices in Maryland, DC and Virginia, with responsibilities including business unit financial performance, resource management, human resources, quality client service, and risk management. Ms. Goitia was admitted to the KPMG partnership in 1993 and had more than 30 years of experience as a professional with ____ |
the_firm, including experience as lead audit partner for a variety of publicly traded and private companies. She has served clients on a wide range of accounting and operational issues, public security issuances and strategic corporate transactions. Ms. Goitia was a speaker, panelist and moderator for KPMG’s Audit Committee Institute as well as for other governance programs external to KPMG. In addition, Ms. Goitia served as an independent member of the Nominating Committee of KPMG’s Board of Directors from 2009 until 2011, and has served on several nonprofit organizations’ boards. Ms. Goitia brings the following experience, qualifications, attributes and skills to the Board: |
General business management and strategic planning experience from her 5 years as the partner-in-charge of the Chesapeake Business Unit Audit Practice of KPMG and over 30 years as a professional at KPMG;
Understanding of and familiarity with public companies and public company boards from her service as lead audit engagement partner at a major accounting firm;
Public company accounting, financial statements and corporate finance expertise from over 20 years of service as lead audit engagement partner at a major accounting firm; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for over 35 years.
Continuing Trustees
The biographical description below for each continuing trustee includes the specific experience, qualifications, attributes and skills that led to the conclusion by the Board that such person should serve as a trustee of Washington REIT.
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| William G. Byrnes | Served as Trustee since 2010 |
| William G. Byrnes has been a private investor since 2001. He was on the Board of Directors of CapitalSource Inc., a commercial lender operating principally through its subsidiary CapitalSource Bank from 2003 until its sale in April 2014, serving in various capacities including Presiding Independent Director and, most recently, Chairman of the Board. He founded, and was Managing Member of, Wolverine Partners, LLC, that operated MUTUALdecision, a mutual fund research business, from September 2006 to October 2012. Mr. Byrnes was co-founder of Pulpfree d/b/a BuzzMetrics, a consumer-generated media research and marketing firm, and served as its Chairman ___ |
| from June 1999 until its sale in September 2005. He was on the Board of Directors and chairman of the Audit Committee of LoopNet, Inc., an information services provider to the commercial real estate industry, from September 2006 until its sale in April 2012. Mr. Byrnes spent 17 years with Alex Brown & Sons, most recently as a Managing Director and head of the investment banking financial institutions group. He has been a full-time and adjunct professor and member of the Board of Regents at Georgetown University and currently sits on its Entrepreneurship Advisory Group. Mr. Byrnes brings the following experience, qualifications, attributes and skills to the Board: |
Real estate investment banking and capital markets experience from his 17 years as an investment banker with Alex Brown & Sons;
REIT industry experience from his involvement over the last 16 years as an independent director of three publicly-traded REITs and an institutional fund focused on investing in REITs;
Retail and residential real estate industry experience from his involvement as an independent director of Sizeler Property Investors from 2002 to 2006;
Financial and accounting acumen from his 17 years in investment banking and his service as a public company director; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C./Baltimore corridor for 41 years.
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| Paul T. McDermott | Served as Trustee Since 2013 |
| Paul T. McDermott was elected to the Board of Trustees and named President and Chief Executive Officer of Washington REIT in October 2013. Prior to joining Washington REIT, he was Senior Vice President and Managing Director for Rockefeller Group Investment Management Corp., a wholly owned subsidiary of Mitsubishi Estate Co., Ltd. from June 2010 to September 2013. Prior to joining The Rockefeller Group, he served from 2006 to 2010 as Principal and Chief Transaction Officer at PNC Realty Investors. Between 2002 and 2006, Mr. McDermott held two primary officer roles at Freddie Mac -- Chief Credit Officer of the Multifamily Division and Head of Multifamily Structured |
Finance and Affordable Housing. From 1997 to 2002, he served as Head of the Washington, D.C. Region for Lend Lease Real Estate Investments. Mr. McDermott brings the following experience, qualifications, attributes and skills to the Board:
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General business management and strategic planning experience from his service as chief executive of Washington REIT and his previous service as Senior Vice President of Rockefeller Group;
Office, retail and residential real estate industry operating and investment experience from his experience as Senior Vice President of Rockefeller Group, Principal and Chief Transaction Officer at PNC Realty Investors and Chief Credit Officer of the Multifamily Division of Freddie Mac;
Office and residential development experience from his experience as Head of Washington, D.C. Region for Lend Lease Real Estate Investments; and
Extensive familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 55 years.
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| Charles T. Nason | Served as Trustee Since 2000 |
| Charles T. Nason is retired Chairman and Chief Executive Officer of The Acacia Group of Washington, D.C. (including Acacia Life, Acacia Federal Savings Bank and the Calvert Group LTD.), now a member company of the Ameritas Group as a result of the merger of the two organizations in 1999. He served Acacia from 1977 to 2005, including as Chief Executive Officer from 1988 to 2003. Mr. Nason is a past Chairman and director of The Greater Washington Board of Trade and the Federal City Council. He served as a director of MedStar Health from 2001 to 2010 and was a member of the Economic Club of Washington. He is also a member of the Board of Trustees of Washington and Jefferson College,
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and served as its Chairman from 2007 to 2010. In addition, he is a past director of The American Council of Life Insurers and past Chairman of the Insurance Marketplace Standards Association. Mr. Nason brings the following experience, qualifications, attributes and skills to the Board:
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General business management and strategic planning experience from his 15 years as a chief executive of The Acacia Group;
Real estate investment and lending experience from his roles in supervising as chief executive The Acacia Group's real estate purchase and sale decisions, and in supervising as Chairman Acacia Federal Savings Bank's real estate construction and acquisition lending;
Financial and accounting acumen from his 15 years of service as a chief executive of an insurance holding company;
Involvement in the D.C. business community, including past service as Chairman of the Greater Washington Board of Trade; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 28 years.
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| Thomas H. Nolan, Jr. | Served as Trustee Since 2015 |
| Thomas H. Nolan, Jr., serves as Chairman of the Board of Directors and Chief Executive Officer of Spirit Realty Capital, Inc. (NYSE: SRC), positions he has held since September 2011. Mr. Nolan previously worked for General Growth Properties, Inc. ("GGP"), serving as Chief Operating Officer from March 2009 to December 2010 and as President from October 2008 to December 2010. He also served as a member of the board of directors of GGP from 2005 to 2010. GGP filed for protection under Chapter 11 of the U.S. Bankruptcy Code in April 2009 and emerged from bankruptcy in November 2010. Mr. Nolan was a member of the senior management team that led GGP’s ____________
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| reorganization and emergence from bankruptcy, which included the restructuring of $15.0 billion in project-level debt, payment in full of all of GGP’s pre-petition creditors and the securing of $6.8 billion in equity commitments. From July 2004 to February 2008, Mr. Nolan served as a Principal and Chief Financial Officer of Loreto Bay Company, the developer of the Loreto Bay master planned community in Baja, California. From October 1984 to July 2004, Mr. Nolan held various financial positions with AEW Capital Management, L.P., a national real estate investment advisor, and from 1998 to 2004, he served as Head of Equity Investing and as President and Senior Portfolio Manager of The AEW Partners Funds. Mr. Nolan brings the following experience, qualifications, attributes and skills to the Board: |
General business management and strategic planning experience from his service as chief executive of Spirit Realty Capital, Inc. and his previous service with GGP;
REIT industry experience from his service as chief executive of Spirit Realty Capital, Inc. and his previous service with GGP;
Real estate asset management experience in multiple asset classes from his 20 years with AEW Capital Management, L.P.; and
Financial and accounting acumen from his 20 years with AEW Capital Management, L.P., his service as chief executive of Spirit Realty Capital, Inc. and his previous service with GGP.
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| Vice Adm. Anthony L. Winns (RET.) | Served as Trustee Since 2011 |
| Vice Adm. Anthony L. Winns (RET.) is President, Middle East-Africa Region, Lockheed Martin Corporation ("Lockheed"), a position he has held since January 2013. Between October 2011 and January 2013, Mr. Winns was Vice President, International Maritime Programs, at Lockheed. Between July 2011 and October 2011, Mr. Winns was a defense industry consultant. Mr. Winns retired in June 2011 after 32 years of service in the United States Navy. He served as Naval Inspector General from 2007 to his retirement. From 2005 to 2007, Mr. Winns served as Deputy Director, Air Warfare Division for the Chief of Naval Operations. Prior to 2003, Mr. Winns served in other staff and leadership positions
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| in Washington, D.C., including at the Bureau of Naval Personnel. He also served as commanding officer of several major commands, including the Pacific Patrol/Reconnaissance task force, the USS Essex, an amphibious assault carrier, and a naval aircraft squadron. Mr. Winns also serves as a director on the board of the Navy Mutual Aid Association. Mr. Winns brings the following experience, qualifications, attributes and skills to the Board: |
General enterprise management and strategic planning experience from his 10 years of service as a commanding officer of various military units (including a naval vessel) and 11 years of service in senior staff positions in the Pentagon;
Government contracting experience from his three years of service managing U.S. Navy procurement programs as Deputy Director, Air Warfare Division for the Chief of Naval Operations (Washington REIT is a federal contractor and many of Washington REIT's largest tenants and potential future tenants are federal contractors);
Washington, D.C. area defense industry experience from his 16 years of service in staff positions in the Pentagon and current service as President, Middle East-Africa Region, Lockheed Martin Corporation; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 22 years.
Board Governance
Leadership Structure
Our President and Chief Executive Officer is Paul T. McDermott. Charles T. Nason serves as our Chairman of the Board of Trustees and is independent under NYSE rules. The Board has concluded that Washington REIT should maintain a Board leadership structure in which either the Chairman or a lead trustee is independent under the rules of the NYSE. As a result, the Board adopted a Corporate Governance Guideline setting forth this policy. The Corporate Governance Guideline is set forth below:
The Board annually elects one of its trustees as Chairman of the Board. The current Chairman of the Board is independent under the rules of the NYSE. In the future, the Chairman of the Board may or may not be an individual who is independent under the rules of the NYSE (and may or may not be the same individual as the Chief Executive Officer). Compensation Committee met ten times in 2013At any time that the Chairman of the Board is not an individual who is independent under the rules of the New York Stock Exchange, the Board will appoint a Lead Independent Trustee elected by the independent trustees. Compensation Committee members are Chairman Civera, Messrs. Byrnes and Russell and Ms. White. All membersThe Lead Independent Trustee has authority to: (i) preside at all meetings of the Compensation CommitteeBoard at which the Chairman of the Board is not present, including executive sessions of the independent trustees; (ii) serve as a liaison between the Chairman of the Board and the independent trustees; (iii) approve information sent to the Board; (iv) approve meeting agendas for the Board; (v) approve meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi) call meetings
of the independent trustees; and (vii) if requested by major shareholders, consult and directly communicate with such shareholders.
The Board believes the leadership structure described in this Corporate Governance Guideline is appropriate because it ensures significant independent Board leadership regardless of whether, in the future, the Chairman is independent under the rules of the NYSE.
Independence
Under NYSE rules, a majority of the Board must qualify as “independent.” To qualify as “independent,” the Board must affirmatively determine that the trustee has no material relationship with us (either directly or as a partner, shareholder or officer of an organization that has a relationship with us).
The Board has determined that all trustees and trustee nominees, with the exception of Mr. McDermott, are “independent,” as that term is defined in the applicable NYSE listing standards.
Washington REIT notes that Lockheed Martin Corporation was a tenant under a commercial lease with Washington REIT entered into in the ordinary course of business through June 2016 (at which time the underlying property was sold by Washington REIT). Mr. Winns serves as an employee of Lockheed Martin but is not an executive officer, board member or 1% shareholder of such company. In addition, payments from Lockheed Martin to Washington REIT under the leasing arrangements were significantly less than 1% of either Washington REIT’s or Lockheed Martin’s 2016 gross revenues. Based on the foregoing, the Board determined no material relationship exists. For the specific reasons set forth above, we believe Mr. Winns is independent under applicable NYSE standards and constitutes an “independent outsider” under applicable Institutional Shareholder Services (ISS) guidance.
Risk Oversight
One of the New York Stock Exchange. Thekey functions of the Board is informed oversight of our risk management process. As an initial matter, the Board considers actual risk monitoring and management to be a function appropriately delegated to Washington REIT management, with the Board and its committees functioning in only an oversight role. Our Board will administer this oversight function directly, with support from its three standing committees, the Audit Committee, Compensation Committee is responsible for making decisions and recommendationsthe Corporate Governance/Nominating Committee, each of which addresses risks specific to their respective areas of oversight. The Board has adopted a policy delineating the roles of the Board and its various committees in an ongoing risk oversight program for Washington REIT, providing that:
the Board will coordinate all risk oversight activities of the Board and its committees, including appropriate coordination with respectWashington REIT's business strategy;
the Audit Committee will oversee material financial reporting risk and risk relating to executive compensation. TheREIT non-compliance;
the Compensation Committee Charter is availablewill oversee financial risk, financial reporting risk and operational risk, in each case arising from Washington REIT's compensation plans;
the Corporate Governance/Nominating Committee will oversee executive succession risk and Board function risk; and
the Board will oversee all other material risks applicable to Washington REIT, including operational, catastrophic and financial risks that may be relevant to Washington REIT's business.
Under its policy, the Board also involves the Audit Committee in its risk oversight functions as required by applicable NYSE rules.
Meetings
The Board held ten meetings in 2016. During 2016, each incumbent trustee attended at least 75% of the aggregate of the total number of meetings of the Board (held during the period for which he has been a trustee) and the total number of meetings of all committees of the Board on our website, www.writ.com,which he served (during the periods that he or she served). All members of the Board attended the Annual Meeting in person in 2016. The Board does not have a formal written policy requiring trustees to attend the Annual Meeting, although trustees have traditionally attended.
Washington REIT's trustees who qualify as “non-management” within the meaning of the NYSE rules meet at regularly scheduled executive sessions without management participation. The sessions are presided over by Mr. Nason in his capacity as Chairman. In 2016, the Board met in executive session without the Chief Executive Officer fivetimes.
Committee Governance
Our Board has three standing committees, an Audit Committee, a Compensation Committee and upon written request.a Corporate Governance/Nominating Committee. The membership and the function of each of these committees are described below.
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| | | Audit | | Compensation | | Corporate Governance/Nominating |
| Benjamin S. Butcher | | Ÿ | | Ÿ | | |
| William G. Byrnes | | Chair | | | | Ÿ |
| Edward S. Civera | | Ÿ | | Chair | | |
| Thomas H. Nolan, Jr. | | Ÿ | | | | Ÿ |
| Vice Adm. Anthony L. Winns | | | | Ÿ | | Chair |
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| Number of meetings held during 2016 | | 8 | | 5 | | 3 |
Audit Committee
The Audit Committee met six times in 2013. The Audit Committee members are Chairman Byrnes and Messrs. Civera, McDaniel and Winns. Mr. Golden was a member during 2013, but resigned as a trustee effective March 11, 2013. All members of the Audit Committee are, and were during 2013,2016, “independent,” as that term is defined in the applicable listing standards of the New York Stock Exchange.under NYSE rules. The Board has determined that each member of the Audit Committee other than Mr. Winns qualifies as an audit committee financial expert, as that term is defined in the rules of the SecuritiesSEC.
The Audit Committee operates pursuant to a charter that was approved by the Board and Exchange Commission (“SEC”). that is reviewed and reassessed at least annually. The Audit Committee’s oversight responsibility includes oversight relating to: (i) the integrity of Washington REIT’s consolidated financial statements and financial reporting process; (ii) Washington REIT’s systems of disclosure controls and procedures, internal control over financial reporting and other financial information provided by Washington REIT; (iii) Washington REIT’s compliance with financial, legal and regulatory requirements; (iv) the annual independent audit of Washington REIT’s financial statements, the engagement and retention of the registered independent public accounting firm and the evaluation of the qualifications, independence and performance of such independent public accounting firm; (v) the performance of Washington REIT’s internal audit function; and (vi) the fulfillment of the other responsibilities set forth in its charter.
The Audit Committee assists the Board in oversight of financial reporting, but the existence of the Audit Committee does not alter the responsibilities of Washington REIT's management and the independent accountant with respect to the accounting and control functions and financial statement presentation. For a more detailed description of the Audit Committee's duties and responsibilities, please refer to the “Audit Committee Report” below in this Proxy Statement. The Audit Committee CharterCommittee’s charter is available on our website, www.writ.com,www.washreit.com, under the heading “Investor” and subheading “Corporate Overview - Corporate Governance,” and upon written request.
Board Leadership Structure
The Board has concluded that Washington REIT should maintain a Board leadership structure in which either the Chairman or a lead trustee is independent under the rules of the New York Stock Exchange. As a result, the Board adopted a Corporate Governance Guideline setting forth this policy on Board leadership. The Corporate Governance Guideline, which was originally adopted by the Board on October 22, 2009, and later updated on February 18, 2010 and May 18, 2010, is set forth below:
The Board annually elects one of its trustees as Chairman of the Board. The current Chairman of the Board is independent under the rules of the NYSE.
In the future, the Chairman of the Board may or may not be an individual who is independent under the rules of the NYSE (and may or may not be the same individual as the Chief Executive Officer). At any time that the Chairman of the Board is not an individual who is independent under the rules of the New York Stock Exchange, the Board will appoint a Lead Independent Trustee elected by the independent trustees. The Lead Independent Trustee has authority to:
preside at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent trustees;
serve as a liaison between the Chairman of the Board and the independent trustees;
approve information sent to the Board;
approve meeting agendas for the Board;
approve meeting schedules to assure that there is sufficient time for discussion of all agenda items;
call meetings of the independent trustees; and
if requested by major shareholders, consult and directly communicate with such shareholders.
In 2013, the Board elected Mr. Nason as Chairman. Mr. Nason is an independent trustee under the listing standards of the New York Stock Exchange.
The Board believes the leadership structure described in its Corporate Governance Guideline set forth above is appropriate because it ensures that the Board will have significant independent leadership regardless of whether, in the future, the Chairman is independent under the rules of the New York Stock Exchange.
Board Role in Risk Oversight
The Board has adopted a policy delineating the roles of the Board and its various committees in an ongoing risk oversight program for Washington REIT. As an initial matter, the Board considers actual risk monitoring and management to be a function appropriately delegated to Washington REIT management, with the Board and its committees functioning in only an oversight role. In this oversight role, the Board's policy provides that:
the Board will coordinate all risk oversight activities of the Board and its committees, including appropriate coordination with Washington REIT's business strategy
the Audit Committee will oversee financial reporting risk, risk relating to information technology systems and risk relating to REIT non-compliance
the Compensation Committee will oversee financial risk, financial reporting risk and operational risk, in each case arising from Washington REIT's compensation plans
the Corporate Governance/Nominating Committee will oversee executive succession risk and board function risk
the Investment Committee (which is currently comprised of all of Washington REIT's trustees) will oversee risks related to Washington REIT's acquisitions, dispositions and developments
the Board will oversee all other risks applicable to Washington REIT, including operational, catastrophic and financial risks that may be relevant to Washington REIT's business
Under its policy, the Board also involves the Audit Committee in its risk oversight functions as required by applicable New York Stock Exchange rules.
Related Party Transactions
Washington REIT notes the following transactions involving members of the Board of Trustees:
MedStar Health Systems is a tenant under commercial leases with Washington REIT entered into in the ordinary course of business. Mr. Civera served in a board capacity (i.e., as a director and the non-executive Chairman) with MedStar Health until November 2013, but was not an employee, executive officer or shareholder of such organization (MedStar Health is a non-profit corporation).
Lockheed Martin Corporation is a tenant under commercial leases with Washington REIT entered into in the ordinary course of business. Mr. Winns serves as an employee of Lockheed Martin but is not an executive officer, board member or 1% shareholder of such company. In addition, payments from Lockheed Martin to Washington REIT under the leasing arrangements are significantly less than 1% of either Washington REIT's or Lockheed Martin's 2013 gross revenues.
Pepco Holdings, Inc. is a regulated utility in the Washington, D.C. area and provides electric supply to Washington REIT's properties in the ordinary course of business. Mr. Golden (a former member of the Board of Trustees who resigned in March 2013) serves in a board capacity (i.e., as a director) with Pepco Holdings, Inc., but is not an employee, executive officer or 1% shareholder of such company.
For the specific reasons set forth above, we believe -
Messrs. Civera and Winns are (and Mr. Golden was during his service) independent under applicable NYSE standards, and
Messrs. Civera and Winns constitute (and Mr. Golden constituted during his service) "independent outsiders” under applicable Institutional Shareholder Services (ISS) guidance.
Trustee Compensation
General
For 2013, our non-employee trustees (other than our Chairman) received an annual retainer of $35,000 plus $1,500 per committee meeting. Our Chairman received an annual retainer of $110,000, with no additional compensation for committee meetings attended (other than for the CEO Search Committee). Our Chairman does not sit on any of our committees, but routinely attends committee meetings in the course of exercising his duties as Chairman. Our Committee Chairs also received additional retainers as follows: Audit Committee, $15,000; Corporate Governance/Nominating Committee, $11,000; Compensation Committee, $11,000; and Finance Committee, $11,000. Audit Committee members were also paid an additional retainer of $3,750. With respect to the CEO Search Committee, the members received a monthly retainer of $1,833 plus a $9,000 fee for the interviews. The CEO Search Committee Chair received a retainer of $6,000 in lieu of the monthly retainer.
In addition, on December 17, 2013, each of the non-employee trustees (including our Chairman) received an annual $55,000 common share grant, with the number of common shares determined by the closing price of the common shares on the date of grant. These common shares vested immediately but are restricted in transfer so long as the trustee serves on the Board. As a result of the foregoing, our Board members may only sell their common shares received as compensation for Board service after the conclusion of their service on the Board. We believe this transfer restriction strongly promotes the alignment of our Board members' interests with the interests of our shareholders.
Washington REIT has adopted a non-qualified deferred compensation plan for non-employee trustees which was amended and restated effective October 22, 2013. The plan allows any non-employee trustee to defer a percentage or dollar amount of his or her cash compensation and/or all of his or her share compensation. Cash compensation deferred is credited with interest equivalent to the weighted average interest rate on Washington REIT's fixed rate bonds as of December 31 of each calendar year. The non-employee trustee may alternatively elect to designate that all of his or her annual board retainer and/or all of his or her share compensation be converted into restricted share units at the market price of common shares as of the end of the applicable quarter. The restricted share units are credited with an amount equal to the corresponding dividends paid on Washington REIT's common
shares. Upon the expiration of a trustee's term, the deferred compensation plus earnings can be paid in either a lump sum or in installments pursuant to a prior election of the trustee, with compensation deferred into restricted share units being paid in the form of shares. Upon a trustee's death, the trustee's beneficiary will receive a lump sum pay out. The plan is unfunded and payments are to be made from general assets of Washington REIT.
Trustee Compensation Table
The following table summarizes the compensation paid by Washington REIT to non-employee trustees for the fiscal year ended December 31, 2013.
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| (a) | (b) | (c) | (f) | (j) |
| Name | Fees Earned or Paid in Cash (1) ($) | Stock Awards (2) ($) | Change in Pension Value and Deferred Compensation Earnings (3) ($) | Total ($) |
| William G. Byrnes | $82,645 | $54,996 | $— | $137,641 |
| Edward S. Civera | 63,188 | 54,996 | — | 118,184 |
Terence C. Golden (4) | 15,438 | — | 95 | 15,533 |
| John P. McDaniel | 92,438 | 54,996 | 18,401 | 165,835 |
| Charles T. Nason | 110,332 | 54,996 | 15,494 | 180,822 |
| Thomas Edgie Russell, III | 63,563 | 54,996 | — | 118,559 |
| Wendelin A. White | 87,000 | 54,996 | 2,418 | 144,414 |
| Vice Adm. Anthony L. Winns (RET.) | 56,750 | 54,996 | — | 111,746 |
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(1) | Includes CEO Search Committee fees as follows: Mr. Byrnes, $16,132; Mr. McDaniel, $15,000; Mr. Nason, $16,332 and Ms. White, $20,000. |
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(2) | Aggregate options held by each non-employee trustee at December 31, 2013, are as follows: Mr. Byrnes, 0: Mr. Civera, 0; Mr. Golden, 0; Mr. McDaniel, 2,000; Mr. Nason, 2,000; Mr. Russell, 0; Ms. White, 0; and Mr. Winns, 0. Aggregate share awards to each non-employee trustee, including deferred compensation shares, as of December 31, 2013, are as follows: Mr. Byrnes, 11,465; Mr. Civera, 14,722; Mr. Golden, 9,267; Mr. McDaniel, 18,878; Mr. Nason, 18,078; Mr. Russell, 14,722; Ms. White, 14,098; and Mr. Winns, 5,297. All share awards are fully vested. See “Ownership of Common Shares by Trustees and Executive Officers” on page 12.
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(3) | Represents above market earnings on deferred compensation pursuant to the deferred compensation plan. |
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(4) | Mr. Golden resigned as a trustee effective March 11, 2013. |
Trustee Background
General
The following table sets forth the names and biographical information concerning each of our continuing trustees and our trustee nominees. Each of our trustee nominees currently serves as a trustee.
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| NAME | PRINCIPAL OCCUPATION | SERVED AS TRUSTEE SINCE | AGE | TERM EXPIRES |
| Continuing Trustees | | | | |
| William G. Byrnes | Chairman, CapitalSource Inc. | 2010 | 63 | 2016 |
| John P. McDaniel | Retired Chief Executive Officer, MedStar Health | 1998 | 71 | 2016 |
| Paul T. McDermott | President and Chief Executive Officer, Washington REIT | 2013 | 52 | 2016 |
| Charles T. Nason | Chairman, Washington REIT; Retired Chairman, President and Chief Executive Officer, The Acacia Group | 2000 | 67 | 2015 |
| Thomas Edgie Russell, III | Retired President, Partners Realty Trust, Inc. | 2006 | 71 | 2015 |
| Vice Adm. Anthony L. Winns (RET.) | President, Middle East-Africa Region, Corporate International Business Development, Lockheed Martin Corporation | 2011 | 58 | 2015 |
| Trustees Nominees | | | | |
| Edward S. Civera | Retired Chairman, Catalyst Health Solutions, Inc. | 2006 | 63 | 2014 |
| Wendelin A. White | Partner, Pillsbury Winthrop Shaw Pittman LLP | 2008 | 61 | 2014 |
Continuing Trustees
Mr. William G. Byrnes has been a private investor since 2001. He is currently Chairman of the Board of Directors of CapitalSource Inc., a commercial lender operating principally through its subsidiary CapitalSource Bank. He founded, and was Managing Member of, Wolverine Partners, LLC, that operated MUTUALdecision, a mutual fund research business, from September 2006 to October 2012. Mr. Byrnes was co-founder of Pulpfree d/b/a BuzzMetrics, a consumer-generated media research and marketing firm, and served as its Chairman from June 1999 until its sale in September 2005. He was on the Board of Directors of LoopNet, Inc., an information services provider to the commercial real estate industry, from September 2006 until its sale in April 2012. Mr. Byrnes spent 17 years with Alex Brown & Sons, most recently as a Managing Director and head of the investment banking financial institutions group. He has been a full-time and adjunct professor and member of the Board of Regents at Georgetown University. Mr. Byrnes brings the following experience, qualifications, attributes and skills to the Board:
Real estate investment banking and capital markets experience from his 17 years as an investment banker with Alex. Brown & Sons
REIT industry experience from his involvement over the last 13 years as an independent director of three publicly-traded REITs and an institutional fund focused on investing in REITs
Retail and residential real estate industry experience from his involvement as an independent director of Sizeler Property Investors from 2002 to 2006
Financial and accounting acumen from his 17 years in investment banking and his service as a public company director
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C./Baltimore corridor for 39 years
Mr. John P. McDaniel served as Chief Executive Officer of MedStar Health, a multi-institutional healthcare organization, from 1982 until his retirement in January 2008. Since August 2008, he has served as Chairman of the Hickory Ridge Group, a private healthcare consulting and facilities development organization, providing strategic advice, tactical support and access to capital to senior management in the healthcare and technology spaces to improve operations, grow enterprise value or prepare for an exit event. He is also Chairman of Hickory Ridge Capital LLC, a venture capital fund focused on early growth stage healthcare services companies, investing in technology-enabled businesses that have established a strong foundation in emerging healthcare markets. Mr. McDaniel also serves on the boards of Medifast, Inc., Wittenberg University and the Mary and Daniel Loughran Foundation. Mr. McDaniel is immediate past chairman of Washington REIT, past Chairman and current board member of the Greater Washington Board of Trade, a member and past Chairman of the Maryland State Racing Commission, a member of the Board of Heroes, Inc. and a member of the Greater Baltimore Committee. Mr. McDaniel is a Fellow of the American College of Healthcare Executives, a member of the Economic Club of Washington, a member of the National Association of Corporate Directors, and a trustee of the National Capitol Area Foundation. In the past, Mr. McDaniel has also served as a director of Georgetown University, the
Federal City Council, the Greater Baltimore Committee and 1st Mariner Bancorp. Mr. McDaniel brings the following experience, qualifications, attributes and skills to the Board:
General business management and strategic planning experience from his 26 years as a chief executive of MedStar Health
Medical office real estate industry experience from his involvement in real estate matters as chief executive of MedStar Health
Financial and accounting acumen from his 26 years as chief executive of a multi-institutional healthcare organization
Involvement in the D.C. business community, including past service as Chairman of the Greater Washington Board of Trade
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C./Baltimore corridor for 44 years
Mr. Paul T. McDermott was elected to the Board of Trustees and named President and Chief Executive Officer of Washington REIT in October 2013. Prior to joining Washington REIT, he was Senior Vice President and Managing Director for Rockefeller Group Investment Management Corp., a wholly owned subsidiary of Mitsubishi Estate Co., Ltd. Prior to joining The Rockefeller Group, he served from 2006 to 2010 as Principal and Chief Transaction Officer at PNC Realty Investors. Between 2002 and 2006, Mr. McDermott held two primary officer roles at Freddie Mac - Chief Credit Officer of the Multifamily Division and Head of Multifamily Structured Finance and Affordable Housing. From 1997 to 2002, he served as Head of the Washington, D.C. Region for Lend Lease Real Estate Investments. Mr. McDermott brings the following experience, qualifications, attributes and skills to the Board:
General business management and strategic planning experience from his service as chief executive of Washington REIT and his previous service as Senior Vice President of Rockefeller Group
Office, retail and residential real estate industry operating and investment experience from his experience as Senior Vice President of Rockefeller Group, Principal and Chief Transaction Officer at PNC Realty Investors and Chief Credit Officer of the Multifamily Division of Freddie Mac
Office and residential development experience from his experience as Head of Washington, D.C. Region for Lend Lease Real Estate Investments
Extensive familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 52 years
Mr. Charles T. Nason is retired Chairman and Chief Executive Officer of The Acacia Group of Washington, D.C. (including Acacia Life, Acacia Federal Savings Bank and the Calvert Group LTD.), now a member company of the Ameritas Group as a result of the merger of the two organizations in 1999. He served Acacia from 1977 to 2005, including as Chief Executive Officer from 1988 to 2003. Mr. Nason is a past Chairman and director of The Greater Washington Board of Trade and the Federal City Council. He served as a director of MedStar Health from 2001 to 2010 and was a member of the Economic Club of Washington. He is also a member of the Board of Trustees of Washington and Jefferson College, and served as its Chairman from 2007 to 2010. In addition, he is a past director of The American Council of Life Insurers and past Chairman of the Insurance Marketplace Standards Association. Mr. Nason brings the following experience, qualifications, attributes and skills to the Board:
General business management and strategic planning experience from his 15 years as a chief executive of The Acacia Group
Real estate investment and lending experience from his roles in supervising as chief executive The Acacia Group's real estate purchase and sale decisions and in supervising as Chairman Acacia Federal Savings Bank's real estate construction and acquisition lending
Financial and accounting acumen from his 15 years of service as a chief executive of an insurance holding company
Involvement in the D.C. business community, including past service as Chairman of the Greater Washington Board of Trade
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 26 years
Mr. Thomas Edgie Russell, III served as President of Partners Realty Trust, Inc., a private real estate company which was previously engaged in the ownership of apartments, offices, and shopping centers, from 1990 until his retirement from active involvement in 2005. Mr. Russell currently serves as a director of Good Samaritan Hospital, a healthcare facility operated by MedStar Health; the Keswick Multi-Care Center, a not-for-profit organization providing skilled nursing care, rehabilitation and adult day services; and The Robert Packard Center for ALS Research at Johns Hopkins, a not-for-profit organization. From 1988 to 1990, Mr. Russell was a director of Florida Rock Industries, a publicly traded construction materials company, prior to its being acquired by Vulcan
Properties Company in 2007, and the Chief Operating Officer of its wholly-owned subsidiary, The Arundel Corporation. He held various executive positions with The Arundel Corporation for approximately 15 years prior to its being acquired by Florida Rock, including serving as Chief Financial Officer from 1981 to 1988. Mr. Russell brings the following experience, qualifications, attributes and skills to the Board:
General business management and strategic planning experience from his 15 years as a chief executive of Partners Realty Trust
Office, retail and residential real estate industry experience from his involvement as a chief executive of Partners Realty Trust
Industrial real estate development experience from his involvement as Chief Financial Officer of The Arundel Corporation, which developed industrial properties in the Washington, D.C./Baltimore corridor
Financial and accounting acumen from his 15 years of service as a chief executive and seven years of service as a chief financial officer
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C./Baltimore corridor for 65 years (Mr. Russell is a Baltimore native)
Vice Adm. Anthony L. Winns (RET.) is President, Middle East-Africa Region, Corporate International Business Development, at Lockheed Martin Corporation, a position he has held since January 2013. Between October 2011 and January 2013, Mr. Winns was Vice President, International Maritime Programs, at Lockheed. Between July 2011 and October 2011, Mr. Winns was a defense industry consultant. Mr. Winns retired in June 2011 after 32 years of service in the United States Navy. He served as Naval Inspector General from 2007 to his retirement. From 2005 to 2007, Mr. Winns served as Director/Vice Director for Operations of the Joint Chiefs of Staff. Between 2003 and 2005, he was Deputy Director, Air Warfare Division for the Chief of Naval Operations. Prior to 2003, Mr. Winns served in other staff and leadership positions in Washington, D.C., including at the Bureau of Naval Personnel. He also served as commanding officer of several major commands, including the Pacific Patrol/Reconnaissance task force, the USS Essex, an amphibious assault carrier, and a naval aircraft squadron. Mr. Winns brings the following experience, qualifications, attributes and skills to the Board:
General enterprise management and strategic planning experience from his 10 years of service as a commanding officer of various military units (including a naval vessel) and 11 years of service in senior staff positions in the Pentagon
Government contracting experience from his three years of service managing U.S. Navy procurement programs as Deputy Director, Air Warfare Division for the Chief of Naval Operations (Washington REIT is a federal contractor and many of Washington REIT's largest tenants and potential future tenants are federal contractors)
Washington, D.C. area defense industry experience from his 15 years of service in staff positions in the Pentagon and current service as President, Middle East-Africa Region, Corporate International Business Development, for Lockheed
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 19 years
Trustee Nominees
Mr. Edward S. Civera served asThe biographical description below for each nominee includes the Chairman of the Board of Catalyst Health Solutions, Inc., a publicly traded pharmacy benefit management company (formerly known as HealthExtras, Inc.), from 2005 until his retirement in December 2011. In 2012, he served as a senior advisor to management and the Board of Directors of Catalyst Health Solutions in connection with the sale of the company. Mr. Civera also served as Chairman of the MedStar Health System, a multi-institutional healthcare organization until his retirement from the board in November 2013. He currently serves as a trustee on the Board of Notre Dame of Maryland University. From 1997 to 2001, Mr. Civera was the Chief Operating Officer and Co-Chief Executive Officer of United Payors & United Providers, Inc. (UP&UP), a publicly-traded healthcare company that was sold in 2000. Prior to that, Mr. Civera spent 25 years with Coopers & Lybrand (now PricewaterhouseCoopers LLP), most recently as Managing Partner, focused on financial advisory and auditing services. Mr. Civera is a Certified Public Accountant. Mr. Civera has also served as a director of The Mills Corporation and MCG Capital Corporation. Mr. Civera brings the followingspecific experience, qualifications, attributes and skills that led to the Board:conclusion by the Board that such person should serve as a trustee of Washington REIT.
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| Benjamin S. Butcher | Served as Trustee Since 2014 |
| Benjamin S. Butcher serves as the Chief Executive Officer, President and Chairman of the Board of Directors of STAG Industrial, Inc., a position he has held since July 2010. Prior to the formation of STAG Industrial, Inc., Mr. Butcher oversaw the growth of STAG Capital Partners, LLC and its affiliates, serving as a member of their Board of Managers and Management Committees, from 2003 to 2011. From 1999 to 2003, Mr. Butcher was engaged as a private equity investor in real estate and technology. From 1997 to 1998, Mr. Butcher served as a Director at Credit Suisse First Boston, where he sourced and executed transactions for the Principal Transactions Group (real estate debt and equity). From ____ |
1993 to 1997, he served as a Director at Nomura Asset Capital, where he focused on marketing and business development for its commercial mortgage-backed securities group. Mr. Butcher brings the following experience, qualifications, attributes and skills to the Board:
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General business management and strategic planning experience from his service as chief executive of STAG Industrial, Inc. and his previous service with STAG Capital Partners, LLC and its affiliates;
REIT industry experience from his service as chief executive of STAG Industrial, Inc. since July 2010;
Real estate investment banking and capital markets experience from his five years as an investment banker with Credit Suisse First Boston and Nomura Asset Capital; and
Financial and accounting acumen from his five years in investment banking, his experience as a private equity investor and with STAG Capital Partners, LLC, and his service as a public company executive with STAG Industrial, Inc.
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| Edward S. Civera | Served as Trustee Since 2006 |
| Edward S. Civera served as the Chairman of the Board of Catalyst Health Solutions, Inc., a publicly traded pharmacy benefit management company (formerly known as HealthExtras, Inc.), from 2005 until his retirement in December 2011. In 2012, he served as a senior advisor to management and the Board of Directors of Catalyst Health Solutions in connection with the sale of the company. Mr. Civera also served as Chairman of the MedStar Health System, a multi-institutional healthcare organization until his retirement from the board in November 2013. From 1997 to 2001, Mr. Civera was the Chief Operating Officer and Co-Chief Executive Officer of United Payors & United Providers, Inc. __________ |
| (UP&UP), a publicly-traded healthcare company that was sold in 2000. Prior to that, Mr. Civera spent 25 years with Coopers & Lybrand (now PricewaterhouseCoopers LLP), most recently as Managing Partner, focused on financial advisory and auditing services. Mr. Civera is a Certified Public Accountant. Mr. Civera has also served as a director of The Mills Corporation, MCG Capital Corporation and Notre Dame of Maryland University. Mr. Civera brings the following experience, qualifications, attributes and skills to the Board: |
General business management and strategic planning experience from his ten years as a public company chief executive or chairman at UP&UP and Catalyst Health SolutionsSolutions;
REIT industry experience from his involvement as an independent director of The Mills Corporation from 2005 to 2006 leading its reorganization and sale as Chairman of the Special Committee and Executive Committee
Committee;Medical officeOffice real estate industry experience from his involvement in real estate matters as Chairman of MedStar HealthHealth;
Financial and accounting acumen from his 2526 years in public accounting and his service as a public company chief executiveexecutive; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C./Baltimore corridor for 25 years28 years.
Ms. Wendelin A. White is a partner at Pillsbury Winthrop Shaw Pittman LLP (“Pillsbury”), where she has practiced law since 1981. Ms. White is a former member of Pillsbury's Managing
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| Ellen M. Goitia | Nominated in March of 2017 |
| Ellen M. Goitia is a Certified Public Accountant and served as the partner-in-charge for KPMG LLP’s (KPMG) Chesapeake Business Unit Audit practice and a member of the firm’s audit leadership team from October 2011 until her retirement in May 2016. As the partner-in-charge of the Chesapeake Business Unit Audit Practice, Ms. Goitia had ultimate operational oversight for five offices in Maryland, DC and Virginia, with responsibilities including business unit financial performance, resource management, human resources, quality client service, and risk management. Ms. Goitia was admitted to the KPMG partnership in 1993 and had more than 30 years of experience as a professional with ____ |
the_firm, including experience as lead audit partner for a variety of publicly traded and private companies. She has served clients on a wide range of accounting and operational issues, public security issuances and strategic corporate transactions. Ms. Goitia was a speaker, panelist and moderator for KPMG’s Audit Committee Institute as well as for other governance programs external to KPMG. In addition, Ms. Goitia served as an independent member of the Nominating Committee of KPMG’s Board of Directors from 2009 until 2011, and has served on several nonprofit organizations’ boards. Ms. Goitia brings the following experience, qualifications, attributes and skills to the Board: |
General business management and Compensation Committee and is currently the head of the firm's Washington, D.C. real estate practice group. In each of the past seven years, Ms. White has been ranked by Chambers USA as a leading real estate attorney in the District of Columbia. She is also included in U.S. News - Best Lawyers and Washington Post - Super Lawyers and in 2005 was named by Washington Business Journal as the top real estate transactional attorney in the Washington, D.C. region. Ms. White concentrates her practice on acquisitions and dispositions, development, financing, and joint ventures, including public-private partnerships, involving commercial properties in various industry segments: office, multi-family, retail, hotel and mixed use. Ms. White sits on the boards of Chevy Chase Trust Company and MedStar Georgetown University Hospital, is the General Counsel of the Economic Club of Washington and the Secretary of the International Women's Forum - Washington, D.C., and serves on the Advisory Board, and is Past President, of Commercial Real Estate Women of Washington, D.C. Ms. White brings the following experience, qualifications, attributes and skills to the Board:
Real estate transactionalstrategic planning experience from her involvement in numerous purchase5 years as the partner-in-charge of the Chesapeake Business Unit Audit Practice of KPMG and sale, financing, joint venture, leasing, workout and other real estate transactions in her 33over 30 years as a real estate attorneyprofessional at KPMG;
Understanding of and familiarity with Pillsburypublic companies and its predecessors
REIT industry experiencepublic company boards from her past and current representation of other REITs in her law practice at Pillsbury and its predecessors
General legal experience from her 33 years as an attorney with Pillsbury and its predecessors
Involvement in the D.C. business community, including current service as General Counsellead audit engagement partner at a major accounting firm;
Public company accounting, financial statements and corporate finance expertise from over 20 years of the Economic Club of Washington and past service as President of CREWlead audit engagement partner at a major accounting firm; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 33over 35 years.
Continuing Trustees
The biographical description below for each continuing trustee includes the specific experience, qualifications, attributes and skills that led to the conclusion by the Board that such person should serve as a trustee of Washington REIT.
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| William G. Byrnes | Served as Trustee since 2010 |
| William G. Byrnes has been a private investor since 2001. He was on the Board of Directors of CapitalSource Inc., a commercial lender operating principally through its subsidiary CapitalSource Bank from 2003 until its sale in April 2014, serving in various capacities including Presiding Independent Director and, most recently, Chairman of the Board. He founded, and was Managing Member of, Wolverine Partners, LLC, that operated MUTUALdecision, a mutual fund research business, from September 2006 to October 2012. Mr. Byrnes was co-founder of Pulpfree d/b/a BuzzMetrics, a consumer-generated media research and marketing firm, and served as its Chairman ___ |
| from June 1999 until its sale in September 2005. He was on the Board of Directors and chairman of the Audit Committee of LoopNet, Inc., an information services provider to the commercial real estate industry, from September 2006 until its sale in April 2012. Mr. Byrnes spent 17 years with Alex Brown & Sons, most recently as a Managing Director and head of the investment banking financial institutions group. He has been a full-time and adjunct professor and member of the Board of Regents at Georgetown University and currently sits on its Entrepreneurship Advisory Group. Mr. Byrnes brings the following experience, qualifications, attributes and skills to the Board: |
Real estate investment banking and capital markets experience from his 17 years as an investment banker with Alex Brown & Sons;
REIT industry experience from his involvement over the last 16 years as an independent director of three publicly-traded REITs and an institutional fund focused on investing in REITs;
Retail and residential real estate industry experience from his involvement as an independent director of Sizeler Property Investors from 2002 to 2006;
Financial and accounting acumen from his 17 years in investment banking and his service as a public company director; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C./Baltimore corridor for 41 years.
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| Paul T. McDermott | Served as Trustee Since 2013 |
| Paul T. McDermott was elected to the Board of Trustees and named President and Chief Executive Officer of Washington REIT in October 2013. Prior to joining Washington REIT, he was Senior Vice President and Managing Director for Rockefeller Group Investment Management Corp., a wholly owned subsidiary of Mitsubishi Estate Co., Ltd. from June 2010 to September 2013. Prior to joining The Rockefeller Group, he served from 2006 to 2010 as Principal and Chief Transaction Officer at PNC Realty Investors. Between 2002 and 2006, Mr. McDermott held two primary officer roles at Freddie Mac -- Chief Credit Officer of the Multifamily Division and Head of Multifamily Structured |
Finance and Affordable Housing. From 1997 to 2002, he served as Head of the Washington, D.C. Region for Lend Lease Real Estate Investments. Mr. McDermott brings the following experience, qualifications, attributes and skills to the Board:
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General business management and strategic planning experience from his service as chief executive of Washington REIT and his previous service as Senior Vice President of Rockefeller Group;
Office, retail and residential real estate industry operating and investment experience from his experience as Senior Vice President of Rockefeller Group, Principal and Chief Transaction Officer at PNC Realty Investors and Chief Credit Officer of the Multifamily Division of Freddie Mac;
Office and residential development experience from his experience as Head of Washington, D.C. Region for Lend Lease Real Estate Investments; and
Extensive familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 55 years.
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| Charles T. Nason | Served as Trustee Since 2000 |
| Charles T. Nason is retired Chairman and Chief Executive Officer of The Acacia Group of Washington, D.C. (including Acacia Life, Acacia Federal Savings Bank and the Calvert Group LTD.), now a member company of the Ameritas Group as a result of the merger of the two organizations in 1999. He served Acacia from 1977 to 2005, including as Chief Executive Officer from 1988 to 2003. Mr. Nason is a past Chairman and director of The Greater Washington Board of Trade and the Federal City Council. He served as a director of MedStar Health from 2001 to 2010 and was a member of the Economic Club of Washington. He is also a member of the Board of Trustees of Washington and Jefferson College,
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and served as its Chairman from 2007 to 2010. In addition, he is a past director of The American Council of Life Insurers and past Chairman of the Insurance Marketplace Standards Association. Mr. Nason brings the following experience, qualifications, attributes and skills to the Board:
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General business management and strategic planning experience from his 15 years as a chief executive of The Acacia Group;
Real estate investment and lending experience from his roles in supervising as chief executive The Acacia Group's real estate purchase and sale decisions, and in supervising as Chairman Acacia Federal Savings Bank's real estate construction and acquisition lending;
Financial and accounting acumen from his 15 years of service as a chief executive of an insurance holding company;
Involvement in the D.C. business community, including past service as Chairman of the Greater Washington Board of Trade; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 28 years.
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| Thomas H. Nolan, Jr. | Served as Trustee Since 2015 |
| Thomas H. Nolan, Jr., serves as Chairman of the Board of Directors and Chief Executive Officer of Spirit Realty Capital, Inc. (NYSE: SRC), positions he has held since September 2011. Mr. Nolan previously worked for General Growth Properties, Inc. ("GGP"), serving as Chief Operating Officer from March 2009 to December 2010 and as President from October 2008 to December 2010. He also served as a member of the board of directors of GGP from 2005 to 2010. GGP filed for protection under Chapter 11 of the U.S. Bankruptcy Code in April 2009 and emerged from bankruptcy in November 2010. Mr. Nolan was a member of the senior management team that led GGP’s ____________
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| reorganization and emergence from bankruptcy, which included the restructuring of $15.0 billion in project-level debt, payment in full of all of GGP’s pre-petition creditors and the securing of $6.8 billion in equity commitments. From July 2004 to February 2008, Mr. Nolan served as a Principal and Chief Financial Officer of Loreto Bay Company, the developer of the Loreto Bay master planned community in Baja, California. From October 1984 to July 2004, Mr. Nolan held various financial positions with AEW Capital Management, L.P., a national real estate investment advisor, and from 1998 to 2004, he served as Head of Equity Investing and as President and Senior Portfolio Manager of The AEW Partners Funds. Mr. Nolan brings the following experience, qualifications, attributes and skills to the Board: |
General business management and strategic planning experience from his service as chief executive of Spirit Realty Capital, Inc. and his previous service with GGP;
REIT industry experience from his service as chief executive of Spirit Realty Capital, Inc. and his previous service with GGP;
Real estate asset management experience in multiple asset classes from his 20 years with AEW Capital Management, L.P.; and
Financial and accounting acumen from his 20 years with AEW Capital Management, L.P., his service as chief executive of Spirit Realty Capital, Inc. and his previous service with GGP.
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| Vice Adm. Anthony L. Winns (RET.) | Served as Trustee Since 2011 |
| Vice Adm. Anthony L. Winns (RET.) is President, Middle East-Africa Region, Lockheed Martin Corporation ("Lockheed"), a position he has held since January 2013. Between October 2011 and January 2013, Mr. Winns was Vice President, International Maritime Programs, at Lockheed. Between July 2011 and October 2011, Mr. Winns was a defense industry consultant. Mr. Winns retired in June 2011 after 32 years of service in the United States Navy. He served as Naval Inspector General from 2007 to his retirement. From 2005 to 2007, Mr. Winns served as Deputy Director, Air Warfare Division for the Chief of Naval Operations. Prior to 2003, Mr. Winns served in other staff and leadership positions
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| in Washington, D.C., including at the Bureau of Naval Personnel. He also served as commanding officer of several major commands, including the Pacific Patrol/Reconnaissance task force, the USS Essex, an amphibious assault carrier, and a naval aircraft squadron. Mr. Winns also serves as a director on the board of the Navy Mutual Aid Association. Mr. Winns brings the following experience, qualifications, attributes and skills to the Board: |
General enterprise management and strategic planning experience from his 10 years of service as a commanding officer of various military units (including a naval vessel) and 11 years of service in senior staff positions in the Pentagon;
Government contracting experience from his three years of service managing U.S. Navy procurement programs as Deputy Director, Air Warfare Division for the Chief of Naval Operations (Washington REIT is a federal contractor and many of Washington REIT's largest tenants and potential future tenants are federal contractors);
Washington, D.C. area defense industry experience from his 16 years of service in staff positions in the Pentagon and current service as President, Middle East-Africa Region, Lockheed Martin Corporation; and
General familiarity with D.C. area real estate by virtue of living and working in the Washington, D.C. region for 22 years.
Board Governance
Leadership Structure
Our President and Chief Executive Officer is Paul T. McDermott. Charles T. Nason serves as our Chairman of the Board of Trustees and is independent under NYSE rules. The Board has concluded that Washington REIT should maintain a Board leadership structure in which either the Chairman or a lead trustee is independent under the rules of the NYSE. As a result, the Board adopted a Corporate Governance Guideline setting forth this policy. The Corporate Governance Guideline is set forth below:
The Board annually elects one of its trustees as Chairman of the Board. The current Chairman of the Board is independent under the rules of the NYSE. In the future, the Chairman of the Board may or may not be an individual who is independent under the rules of the NYSE (and may or may not be the same individual as the Chief Executive Officer). At any time that the Chairman of the Board is not an individual who is independent under the rules of the New York Stock Exchange, the Board will appoint a Lead Independent Trustee elected by the independent trustees. The Lead Independent Trustee has authority to: (i) preside at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent trustees; (ii) serve as a liaison between the Chairman of the Board and the independent trustees; (iii) approve information sent to the Board; (iv) approve meeting agendas for the Board; (v) approve meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi) call meetings
of the independent trustees; and (vii) if requested by major shareholders, consult and directly communicate with such shareholders.
The Board believes the leadership structure described in this Corporate Governance Guideline is appropriate because it ensures significant independent Board leadership regardless of whether, in the future, the Chairman is independent under the rules of the NYSE.
Independence
Under NYSE rules, a majority of the Board must qualify as “independent.” To qualify as “independent,” the Board must affirmatively determine that the trustee has no material relationship with us (either directly or as a partner, shareholder or officer of an organization that has a relationship with us).
The Board has determined that all trustees and trustee nominees, with the exception of Mr. McDermott, are “independent,” as that term is defined in the applicable NYSE listing standards.
Washington REIT notes that Lockheed Martin Corporation was a tenant under a commercial lease with Washington REIT entered into in the ordinary course of business through June 2016 (at which time the underlying property was sold by Washington REIT). Mr. Winns serves as an employee of Lockheed Martin but is not an executive officer, board member or 1% shareholder of such company. In addition, payments from Lockheed Martin to Washington REIT under the leasing arrangements were significantly less than 1% of either Washington REIT’s or Lockheed Martin’s 2016 gross revenues. Based on the foregoing, the Board determined no material relationship exists. For the specific reasons set forth above, we believe Mr. Winns is independent under applicable NYSE standards and constitutes an “independent outsider” under applicable Institutional Shareholder Services (ISS) guidance.
Risk Oversight
One of the key functions of the Board is informed oversight of our risk management process. As an initial matter, the Board considers actual risk monitoring and management to be a function appropriately delegated to Washington REIT management, with the Board and its committees functioning in only an oversight role. Our Board will administer this oversight function directly, with support from its three standing committees, the Audit Committee, Compensation Committee and the Corporate Governance/Nominating Committee, each of which addresses risks specific to their respective areas of oversight. The Board has adopted a policy delineating the roles of the Board and its various committees in an ongoing risk oversight program for Washington REIT, providing that:
the Board will coordinate all risk oversight activities of the Board and its committees, including appropriate coordination with Washington REIT's business strategy;
the Audit Committee will oversee material financial reporting risk and risk relating to REIT non-compliance;
the Compensation Committee will oversee financial risk, financial reporting risk and operational risk, in each case arising from Washington REIT's compensation plans;
the Corporate Governance/Nominating Committee will oversee executive succession risk and Board function risk; and
the Board will oversee all other material risks applicable to Washington REIT, including operational, catastrophic and financial risks that may be relevant to Washington REIT's business.
Under its policy, the Board also involves the Audit Committee in its risk oversight functions as required by applicable NYSE rules.
Meetings
The Board held ten meetings in 2016. During 2016, each incumbent trustee attended at least 75% of the aggregate of the total number of meetings of the Board (held during the period for which he has been a trustee) and the total number of meetings of all committees of the Board on which he served (during the periods that he or she served). All members of the Board attended the Annual Meeting in person in 2016. The Board does not have a formal written policy requiring trustees to attend the Annual Meeting, although trustees have traditionally attended.
Washington REIT's trustees who qualify as “non-management” within the meaning of the NYSE rules meet at regularly scheduled executive sessions without management participation. The sessions are presided over by Mr. Nason in his capacity as Chairman. In 2016, the Board met in executive session without the Chief Executive Officer fivetimes.
Committee Governance
Our Board has three standing committees, an Audit Committee, a Compensation Committee and a Corporate Governance/Nominating Committee. The membership and the function of each of these committees are described below.
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| | | Audit | | Compensation | | Corporate Governance/Nominating |
| Benjamin S. Butcher | | Ÿ | | Ÿ | | |
| William G. Byrnes | | Chair | | | | Ÿ |
| Edward S. Civera | | Ÿ | | Chair | | |
| Thomas H. Nolan, Jr. | | Ÿ | | | | Ÿ |
| Vice Adm. Anthony L. Winns | | | | Ÿ | | Chair |
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| Number of meetings held during 2016 | | 8 | | 5 | | 3 |
Audit Committee
All members of the Audit Committee are, and were during 2016, “independent,” under NYSE rules. The Board has determined that each member of the Audit Committee qualifies as an audit committee financial expert, as that term is defined in the rules of the SEC.
The Audit Committee operates pursuant to a charter that was approved by the Board and that is reviewed and reassessed at least annually. The Audit Committee’s oversight responsibility includes oversight relating to: (i) the integrity of Washington REIT’s consolidated financial statements and financial reporting process; (ii) Washington REIT’s systems of disclosure controls and procedures, internal control over financial reporting and other financial information provided by Washington REIT; (iii) Washington REIT’s compliance with financial, legal and regulatory requirements; (iv) the annual independent audit of Washington REIT’s financial statements, the engagement and retention of the registered independent public accounting firm and the evaluation of the qualifications, independence and performance of such independent public accounting firm; (v) the performance of Washington REIT’s internal audit function; and (vi) the fulfillment of the other responsibilities set forth in its charter.
The Audit Committee assists the Board in oversight of financial reporting, but the existence of the Audit Committee does not alter the responsibilities of Washington REIT's management and the independent accountant with respect to the accounting and control functions and financial statement presentation. For a more detailed description of the Audit Committee's duties and responsibilities, please refer to the “Audit Committee Report” below in this Proxy Statement. The Audit Committee’s charter is available on our website, www.washreit.com, under the heading “Investor” and subheading “Corporate Overview - Corporate Governance,” and upon written request.
Compensation Committee
All members of the Compensation Committee are “independent,” under NYSE rules. The Compensation Committee operates pursuant to a charter that was approved by the Board and that is reviewed and reassessed at least annually. The Compensation Committee’s responsibilities include, among other duties: (i) discharging responsibilities relating to compensation of Washington REIT’s Chief Executive Officer, other executive officers and trustees, taking into consideration, among other factors, any shareholder vote on compensation; (ii) implementing and administering Washington REIT’s compensation plans applicable to executive officers; (iii) overseeing and assisting Washington REIT in preparing the Compensation Discussion & Analysis for inclusion in Washington REIT's proxy statement and/or annual report on Form 10-K; (iv) providing for inclusion in Washington REIT's proxy statement a description of the processes and procedures for the consideration and determination of executive officer and trustee compensation; and (v) preparing and submitting for inclusion in Washington REIT's proxy statement and/or annual report on Form 10-K a Compensation Committee Report.
The Compensation Committee’s charter is available on our website, www.washreit.com, under the heading “Investor” and subheading “Corporate Overview - Corporate Governance,” and upon written request.
Corporate Governance/Nominating Committee
All members of the Corporate Governance/Nominating Committee are “independent,” under NYSE rules. The Corporate Governance/Nominating Committee operates pursuant to a charter that was approved by the Board and that is reviewed and reassessed at least annually. The Corporate Governance/Nominating Committee’s responsibilities include, among other duties: (i) to identify and recommend to the full Board qualified candidates for election as trustees and recommend nominees
for election as trustees at the annual meeting of shareholders consistent with criteria approved by the Board; (ii) to develop and recommend to the Board a set of corporate governance guidelines applicable to Washington REIT, and implement and monitor such guidelines as adopted by the Board; (iii) to oversee the Board’s compliance with financial, legal and regulatory requirements and its ethics program as set forth in Washington REIT’s Code of Business Conduct and Ethics; (iv) to review and make recommendations to the Board on matters involving the general operation of the Board, including the size and composition of the Board and the structure and composition of Board committees; (v) to recommend to the Board nominees for each Board committee; (vi) to annually facilitate the assessment of the Board’s performance, as required by applicable law, regulations and NYSE corporate governance listing standards; (vii) to oversee the Board’s evaluation of management; and (viii) to consider corporate governance issues that may arise from time to time and make recommendations to the Board with respect thereto.
The Corporate Governance/Nominating Committee’s charter is available on our website, www.washreit.com, under the heading “Investor” and subheading “Corporate Overview - Corporate Governance,” and upon written request.
Trustee Nominee Consideration
Selection Process
The Corporate Governance/Nominating Committee's process for the recommendation of trustee candidates, as it exists from time to time, is described in our Corporate Governance Guidelines. Set forth below is a general summary of the process that the Corporate Governance/Nominating Committee currently utilizes for the consideration of trustee candidates. The Corporate Governance/Nominating Committee may, in the future, modify or deviate from this process in connection with the selection of a particular trustee candidate.
The Corporate Governance/Nominating Committee develops and maintains a list of potential candidates for Board membership on an ongoing basis. Corporate Governance/Nominating Committee members and other Board members may recommend potential candidates for inclusion on such list. In addition, the Corporate Governance/Nominating Committee, in its discretion, may seek potential candidates from organizations, such as the National Association of Corporate Directors, that maintain databases of potential candidates. Shareholders may also put forward potential candidates for the Corporate Governance/Nominating Committee's consideration by submitting candidates to the attention of the Corporate Governance/Nominating Committee at our executive offices in Washington, D.C. The Corporate Governance/Nominating Committee screens all potential candidates in the same manner regardless of the source of the recommendation.
The Corporate Governance/Nominating Committee reviews the attributes, skill sets and other qualifications for potential candidates (see current attributes, skill sets and other qualifications below) from time to time and may modify them based upon the Corporate Governance/Nominating Committee's assessment of the needs of the Board and the skill sets required to meet those needs.
When the Corporate Governance/Nominating Committee is required to recommend a candidate for nomination for election to the Board at an annual or special meeting of shareholders, or otherwise expects a vacancy on the Board to occur, it commences a candidate selection process by reviewing all potential candidates against
the current attributes, skill sets and other qualifications to determine whether a candidate is suitable for Board membership. This review may also include an examination of publicly available information and consideration of the NYSE independence requirements, the number of boards on which the candidate serves, the possibility of interlocks, other requirements or prohibitions imposed by applicable laws, regulations or Washington REIT policies and practices, and any actual or potential conflicts of interest. The Corporate Governance/Nominating Committee then determines whether to remove any candidate from consideration as a result of the foregoing review. Thereafter, the Corporate Governance/Nominating Committee determines a proposed interview list from among the remaining candidates and recommends such interview list to the Board.
Following the Board's approval of the interview list, the Chairman of the Corporate Governance/Nominating Committee or, at his or her discretion, other trustees interview the potential candidates on such list. After the completion of candidate interviews, the Corporate Governance/Nominating Committee determines a priority ranking of the potential candidates on the interview list and recommends such priority ranking to the Board.
Following the Board's approval of the priority ranking, the Chairman of the Corporate Governance/Nominating Committee or, at his or her discretion, other trustees contact the potential candidates based on their order in the priority ranking. When a potential candidate indicates his or her willingness to accept nomination to the Board, the recommendation process is substantially complete. Subject to a final review of eligibility under Washington REIT policies and applicable laws and regulations using information supplied directly by the candidate, the Corporate Governance/Nominating Committee then recommends the candidate for nomination.
The Corporate Governance/Nominating Committee's minimum qualifications and specific qualities and skills required for trustees, as they exist from time to time, are also set forth in our Corporate Governance Guidelines. Our Corporate Governance Guidelines currently provide that each trustee candidate, at a minimum, should possess the following attributes: integrity, trustworthiness, business judgment, credibility, collegiality, professional achievement, constructiveness and public awareness. Our Corporate Governance Guidelines also provide that, as a group, the independent trustees should possess the following skill sets and characteristics: financial acumen equivalent to the level of a public company chief financial officer or senior executive of a capital market, investment or financial services firm; operational or strategic acumen germane to the real estate industry; public and/or government affairs acumen; corporate governance acumen, gained through service as a senior officer or director of a publicly-owned corporation or comparable academic or other experience; and diversity in terms of gender, ethnicity, experience and expertise.
Ms. Goitia was nominated to the Board as a Class III Director on March 16, 2017, to fill Ms. White’s open position. Potential nominees were solicited from the Board. The candidates were evaluated based on the criteria established for potential trustees, as listed above. The Board believes Ms. Goitia meets the established criteria and is the best qualified candidate for election to the Board. Ms. Goitia is a new nominee for election to the Board this year, and her nomination was recommended by the Corporate Governance/Nominating Committee and approved by the Board.
Diversity Policy
The Board maintains a policy with regard to consideration of diversity in identifying trustee nominees. Consistent with this policy, the Corporate Governance/Nominating Committee specifically considers diversity as a factor in the selection of trustee nominees. As noted above, the Board defines diversity in our Corporate Governance Guidelines in terms of gender, ethnicity, experience and expertise.
The Board and the Corporate Governance/Nominating Committee both assess the policy to be effective insofar as it has been actively incorporated into discussions of the Corporate Governance/Nominating Committee with respect to Board membership occurring since the policy was adopted.
Other Governance Matters
Related Party Transactions Policy
When a reportable related party transaction arises, Washington REIT requires the review and approval of the Audit Committee. The Audit Committee will approve the transaction only if the Audit Committee believes that the transaction is in the best interest of Washington REIT.
Communications with the Board
The Board provides a process for shareholders and other interested parties to send communications to the entire Board or to any of the trustees. Shareholders and interested parties may send these written communications c/o Corporate Secretary, Washington Real Estate Investment Trust, 1775 Eye Street, N.W., Suite 1000, Washington, D.C. 20006. All communications will be compiled by the Corporate Secretary and submitted to the Board or the trustees on a periodic basis.
Corporate Governance Guidelines
Washington REIT has adopted Corporate Governance Guidelines. Our Corporate Governance Guidelines, as well as the Committee Charters, are available on our website, www.washreit.com, under the heading “Investor” and subheading “Corporate Overview - Corporate Governance,” and upon written request.
Code of Ethics and Business Conduct
Washington REIT has adopted a Code of Ethics and Business Conduct that applies to all of its trustees, officers and employees. The Code of Ethics is available on our website, www.washreit.com, under the heading “Investor” and subheading “Corporate Overview - Corporate Governance,” and available upon written request. Washington REIT intends to post on our website any amendments to, or waivers from, the Code of Ethics and Business Conduct promptly following the date of such amendment or waiver.
Trustee Compensation
General
For 2016, our non-employee trustees (other than our Chairman) received an annual retainer of $35,000 plus an additional $1,500 per committee meeting attended. Our Chairman received an annual retainer of $110,000, with no additional compensation for committee meetings attended. Our Chairman does not sit on any of our committees, but routinely attends committee meetings in the course of exercising his duties as Chairman. Our Committee Chairs also received additional retainers as follows: Audit Committee, $15,000; Corporate Governance/Nominating Committee, $11,000; and Compensation Committee, $11,000. Audit Committee members were also paid an additional annual retainer of $3,750.
Each of our non-employee trustees also receives an annual $100,000 common share grant, awarded 50% on the earlier of the annual shareholder meeting date or May 15, and the remaining 50% on December 15 of each calendar year. The number of common shares is determined by the closing price of the common shares on the date of grant.
Washington REIT has adopted a non-qualified deferred compensation plan for non-employee trustees which was amended and restated effective October 21, 2015. The plan allows any non-employee trustee to defer a percentage or dollar amount of his or her cash compensation and/or all of his or her share compensation. Cash compensation deferred is credited with interest equivalent to the weighted average interest rate on Washington REIT's fixed-rate bonds as of December 31 of each calendar year. A non-employee trustee may alternatively elect to designate that all of his or her annual board retainer and/or all of his or her share compensation be converted into restricted share units at the market price of common shares as of the end of the applicable quarter. The restricted share units are credited with an amount equal to the corresponding dividends paid on Washington REIT's common shares. Following a trustee's separation from service, the deferred compensation plus earnings can be paid in either a lump sum or, in the case of deferred cash compensation only, in installments pursuant to a prior election of the trustee. Compensation deferred into restricted share units is paid in the form of shares. Upon a trustee's death, the trustee's beneficiary will receive a lump sum payout of any restricted share units in the form of shares, and any deferred cash compensation will be paid in accordance with the trustee’s prior election either as a lump sum or in installments. The plan is unfunded and payments are to be made from general assets of Washington REIT.
Trustee Ownership Policy
The Board has adopted a trustee share ownership policy for non-employee trustees. Under the policy, each trustee is required to retain an aggregate number of common shares the value of which must at least equal five times the annual cash retainer.
In order to calculate the required number of shares, the annual cash retainer at the time of a trustee’s election (or, if later, the policy implementation date of July 23, 2014) is multiplied by five, with the resulting product then being divided by the average closing price for the 60 days prior to the date of election (or, if later, the policy implementation date). Each non-employee trustee is required to meet the threshold within five years after their initial election to the Board. Trustees whose initial election was more than five years before the policy implementation date were required to have met their ownership goal on the policy implementation date (and Washington REIT believes all such trustees did, in fact, meet their ownership goal on the policy implementation date).
In order to effectuate the foregoing policy, common shares received by trustees as compensation vest immediately but are restricted in transfer so long as the trustee serves on the Board pursuant to an additional Board-adopted policy. As a result of the foregoing, our Board members may only sell their common shares received as compensation for Board service after the conclusion of their service on the Board. We believe this transfer restriction strongly promotes the alignment of our Board members' interests with the interests of our shareholders.
Trustee CompensationTable
The following table summarizes the compensation paid by Washington REIT to our non-employee trustees who served on the Board for the fiscal year ended December 31, 2016. All share awards are fully vested (but subject to the transfer restriction noted above). See “Principal and Management BackgroundShareholders - Trustee and Executive Officer Ownership" on page 25. Mr. McDermott does not receive any compensation for his service as a member of the Board.
|
| | | | | | | | | | | | |
| (a) | (b) | (c) | (f) | (j) |
| Name | Fees Earned or Paid in Cash ($) | Stock Awards (1) ($) | Change in Pension Value and Deferred Compensation Earnings (2) ($) | Total ($) |
| Benjamin S. Butcher | $ | 58,250 |
| $ | 99,968 |
| $ | 57 |
| $ | 158,275 |
|
| William G. Byrnes | 66,500 |
| 99,968 |
| — |
| 166,468 |
|
| Edward S. Civera | 69,250 |
| 99,968 |
| — |
| 169,218 |
|
| John P. McDaniel (3) | 23,646 |
| 49,996 |
| 13,263 |
| 86,905 |
|
| Charles T. Nason | 110,000 |
| 99,968 |
| 27,540 |
| 237,508 |
|
| Thomas H. Nolan, Jr. | 55,250 |
| 99,968 |
| — |
| 155,218 |
|
| Wendelin A. White (4) | 38,167 |
| 49,996 |
| 6,726 |
| 94,889 |
|
| Vice Adm. Anthony L. Winns (RET.) | 49,750 |
| 99,968 |
| — |
| 149,718 |
|
| |
| (1) | Column (c) represents the total grant date fair value of all equity awards computed in accordance with FASB ASC Topic 718. |
| |
| (2) | Represents above market earnings on deferred compensation pursuant to the deferred compensation plan. |
| |
| (3) | Mr. McDaniel resigned from the Board effective May 12, 2016. |
| |
| (4) | Ms. White resigned from the Board effective August 19, 2016. |
Executive Officers
The following table contains information regarding our executive officers (other than our President and Chief Executive Officer, Mr. McDermott, who is listed above).
|
| | |
NAME OF EXECUTIVE OFFICER | AGE | POSITION |
William T. CampThomas Q. Bakke | 5162 | Executive Vice President and Chief Operating Officer |
| Stephen E. Riffee | 59 | Executive Vice President and Chief Financial Officer |
Laura M. FranklinThomas C. Morey (1) | 5345 | ExecutiveSenior Vice President, Accounting, AdministrationGeneral Counsel and Corporate Secretary |
James B. CederdahlTaryn D. Fielder (2) | 5539 | Senior Vice President, Property Operations |
Thomas C. Morey | 42 | Senior Vice PresidentGeneral Counsel and General Counsel |
Thomas L. Regnell | 57 | Senior Vice President and Managing Director, Office DivisionCorporate Secretary, effective March 29, 2017 |
(1) Mr. Morey resigned on July 26, 2016. |
| | |
NAME OF OFFICER
| AGE | POSITION
|
Paul S. Weinschenk | 48 | Managing Director and Vice President, Retail Division |
Edward J. Murn | 46 | Managing Director, Residential Division |
Mr. William T. “Bill” Camp joined Washington REIT in November 2008 as Executive Vice President and Chief Financial Officer - Elect and was elected to Executive Vice President and Chief Financial Officer on March 3, 2009. Prior to joining Washington REIT, he was Vice President, Assistant Director of Equities at Wachovia Securities, LLC where he was one of the lead portfolio managers overseeing the investment of approximately $7 billion. Prior to the merger between Wachovia Securities, LLC and A.G. Edwards & Sons, Inc. in October 2007, Mr. Camp served as Assistant Director of Equity and Fixed Income Research at A.G. Edwards from 2004. Previously, Mr. Camp served five years as Vice President, REIT Research Group Leader and seven years as a Senior Public Finance Investment Banker, also with A.G. Edwards.
(2) Ms. Laura M. Franklin joined Washington REIT in August 1993 as Assistant Vice President, Finance. In 1995, she was named Vice President, Chief Accounting Officer and Corporate Secretary of Washington REIT. Ms. Franklin was named Senior Vice President, Accounting, Administration and Corporate Secretary in May 2002 and was promoted to Executive Vice President in June 2007. Prior to joining Washington REIT, she was employed by CohnReznick (formerly The Reznick Group), specializing in
audit and tax services for real estate clients. Ms. Franklin formerly served on the NAREIT Best Financial Practices Council and was a director of KEEN USA and KEEN Greater DC, a non-profit organization that provides recreational opportunities for children and young adults with mental and physical disabilities. Ms. Franklin is a Certified Public Accountant.
Mr. James B. Cederdahl was promoted to Senior Vice President, Property Operations in May 2012. Previously, he had served as Managing Director, Property Management since January 2006. HeFielder joined Washington REIT as Senior Property Manager in August 1994Vice President, General Counsel and was promoted to Director in 1999. Between 1984 and 1994, he performed management and leasing operations for a portfolio consistingCorporate Secretary on March 29, 2017.
As of both retail and office buildings at Gates, Hudson, & Associates.
Mr. Thomas C. Morey joinedJanuary 1, 2017, Washington REIT in October 2008 as Senior Vice Presidenthas three named executive officers, Mr. McDermott, Mr. Bakke and General Counsel. Prior to joiningMr. Riffee. Washington REIT he served in a business role as Chief Operating Officer of Medical Funding Services, Inc., a provider of financial and administrative services to healthcare companies, from February 2006 to September 2008. Previously, Mr. Morey was a corporate partner with Hogan & Hartson LLP, a multi-national law firm (now known as Hogan Lovells), where he focused on capital market transactions, mergers and acquisitions, strategic investments and general business matters for national and regional office, retail, residential, lodging andhas no other REITs. From 1997 to 1998, Mr. Morey was a corporate attorney with Jones Day in Dallas, Texas. Mr. Morey is a member of the Board of Directors of the Maryland Chamber of Commerce and also serves on the Executive Committee of the Maryland Chamber of Commerce.
Mr. Thomas L. Regnell joined Washington REIT in January 1995 as Vice President, Acquisitions. Mr. Regnell was named Managing Director, Acquisitions in 2001 and was promoted to Senior Vice President, Acquisitions in October 2007. In November 2012, Mr. Regnell assumed responsibilities as head of our Office Division and currently serves as Senior Vice President and Managing Director, Office Division. From 1992 through 1994, Mr. Regnell served as an Investment (Acquisitions) Officer with Federal Realty Investment Trust. Previously, Mr. Regnell was a Vice President with Spaulding & Slye Company, a real estate development, brokerage and management company.
Mr. Edward J. Murn, IV, joined Washington REIT in April 2013 as Managing Director, Residential Division. Prior to joining Washington REIT, he was Director of Development at The Tower Companies from September 2008 to March 2013, where he was responsible for metro DC area projects including The Blairs, White Flint Mall, and Tower Oaks. His previous experience was as Vice President of Multifamily Development and Team Leader at Kettler, Inc. from 2004 to 2008; as Director of Acquisitions & Development, Northeast Investment Group at Archstone-Smith Trust from 2001 to 2004; and as Director of Capital Markets at Charles E. Smith Residential Realty, Inc. from 2000 to 2001. Mr. Murn began his professional career as a banker with Citizens Bank of Maryland and First Horizon Construction Lending. Mr. Murn is an active member of the Urban Land Institute and Johns Hopkins Real Estate Forum.
Paul S. Weinschenk, LEED AP, joined Washington REIT in February 2013 as Managing Director and Vice President, Retail Division. Prior to joining Washington REIT, he was Vice President, Retail at The Peterson Companies, a leading Washington, D.C.-based retail development company, for 16 years since 1997. Prior to that, Mr. Weinschenk worked for three years at Apple South, Inc. from 1994 to 1997 acquiring real estate for the company in a five-state area. He also worked for the Chase Manhattan Bank, N.A. in its Owned Real Estate Department from 1992 to 1994. Mr. Weinschenk's professional career began as an architect working for Dewberry. Mr. Weinschenk is an active member of the International Council of Shopping Centers (ICSC), currently serving as State Director for Maryland, Northern Virginia and the District of Columbia.executive officers.
There are no family relationships between any trustee and/or executive officer. There are no reportable related-party transactions between any members of management and Washington REIT.transactions.
|
| |
| Thomas Q. Bakke |
| Executive Vice President and Chief Operating Officer |
| Thomas Q. Bakke was named Executive Vice President and Chief Operating Officer of Washington REIT in April 2014. Prior to joining Washington REIT, he was Senior Managing Director at Cushman & Wakefield where he was the Market Leader for Northern Virginia since April 2013. From January 2012 to April 2013, Mr. Bakke was a consultant and operated a non-profit organization. From February 2007 to January 2012, Mr. Bakke held the position of Market Managing Director for Boston at Equity Office Properties, a national commercial real estate owner and a subsidiary of The Blackstone Group. Over his 20 plus years at Equity Office Properties, Mr. Bakke held positions with The Staubach ________ |
Company and Coldwell Banker Commercial Real Estate Services (predecessor of CBRE Group, Inc.). Mr. Bakke served in the U.S. Naval Reserve for 14 years and was a former F-14 aviator, attaining more than 1000 flight hours with direct involvement in such world crisis situations as the Iranian hostage rescue effort and the Iran-Iraq war.
|
|
| |
| Stephen E. Riffee |
| Executive Vice President and Chief Financial Officer |
| Stephen E. Riffee joined Washington REIT as Executive Vice President and Chief Financial Officer-elect on February 17, 2015. Mr. Riffee then was elected Chief Financial Officer on March 4, 2015. Prior to joining Washington REIT, Mr. Riffee served as Executive Vice President and Chief Financial Officer for Corporate Office Properties Trust (COPT), an NYSE office REIT, from 2006 to February 2015. In this role he oversaw all financial functions, including accounting, financial planning and analysis, tax, treasury, capital markets and investor relations. Additionally, Mr. Riffee oversaw the legal department and information technology at COPT. Between 2002 and 2006, he served as Executive |
Vice President and Chief Financial Officer for CarrAmerica Realty Corporation, a national NYSE public office REIT.
|
|
| |
| Taryn D. Fielder |
| Senior Vice President, General Counsel and Corporate Secretary |
| Taryn D. Fielder joined Washington REIT as Senior Vice President, General Counsel and Corporate Secretary on March 29, 2017. Prior to joining Washington REIT, Ms. Fielder served as Senior Vice President and General Counsel of ASB Real Estate Investments (“ASB”), a division of ASB Capital Management, LLC, a U.S. real estate investment management firm, from June 2013 until March 2017. As Senior Vice President and General Counsel, Ms. Fielder served as the principal legal advisor to ASB's management team. Prior to joining ASB, Ms. Fielder served as Assistant General Counsel of DiamondRock Hospitality Company, an NYSE-traded REIT, from February 2011 until June 2013. Ms. |
| Fielder was an associate in the Real Estate Group at Hogan & Hartson (now Hogan Lovells) from 2004 until 2011. Prior to joining Hogan & Hartson, Ms. Fielder spent two years with Simpson, Thacher and Bartlett LLP, from 2002 until 2004. |
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
Ownership of Common Shares by TrusteesTrustee and Executive OfficersOfficer Ownership
The following table sets forth certain information concerning all common shares beneficially owned as of March 14, 201415, 2017 by each trustee, by each of the NEOs (as defined in “Executive Compensation” below)“Compensation Discussion and Analysis” below on page 30 and by all current trustees and executive officers as a group. Unless otherwise indicated, the voting and investment powers for the common shares listed are held solely by the named holder and/or the holder's spouse.
|
| | | | |
NAME | SHARES OWNED (1)(2) |
| | PERCENTAGE OF TOTAL |
| William G. Byrnes | 32,548 |
| | 0.05% |
| William T. Camp | 69,547 |
| | 0.10% |
| James B. Cederdahl | 22,379 |
| | 0.03% |
| Edward S. Civera | 25,669 |
| | 0.04% |
| Laura M. Franklin | 94,917 |
| | 0.14% |
| John P. McDaniel | 26,731 |
| | 0.04% |
| Paul T. McDermott | 21,000 |
| | 0.03% |
| Charles T. Nason | 45,530 |
| | 0.07% |
| Thomas L. Regnell | 72,307 |
| | 0.11% |
| Thomas Edgie Russell, III | 18,177 |
| | 0.03% |
| Wendelin A. White | 14,703 |
| | 0.02% |
| Vice Adm. Anthony L. Winns (RET.) | 5,523 |
| | 0.01% |
| All Trustees and Executive Officers as a group (13 persons) | 485,153 |
| | 0.73% |
|
| | | |
| NAME | SHARES OWNED (1) |
| PERCENTAGE OF TOTAL |
| Thomas Q. Bakke | 72,091 |
| * |
| Benjamin S. Butcher | 11,526 |
| * |
| William G. Byrnes | 50,746 |
| * |
| Edward S. Civera | 38,541 |
| * |
| Ellen M. Goitia (2) | — |
| * |
| Paul T. McDermott | 140,145 |
| * |
| Thomas C. Morey (3) | 35,939 |
| * |
| Charles T. Nason | 53,706 |
| * |
| Thomas H. Nolan, Jr. | 7,221 |
| * |
| Stephen E. Riffee | 32,317 |
| * |
| Vice Adm. Anthony L. Winns (RET.) | 15,913 |
| * |
| All Current Trustees and Executive Officers as a group (9 persons) (4) | 422,206 |
| * |
* Less than 1%.
| |
| (1) | Includes common shares subject to options exercisable within 60 days, as follows: Mr. McDaniel, 2,000; Mr. Nason, 2,000; and all trustees and executive officers as a group, 4,000.
|
| |
(2) | Includes common shares issuable, pursuant to vested restricted share units, upon the person's volitional departure from Washington REIT, as follows: Mr. Bakke, 4,151; Mr. Butcher, 11,526; Mr. Byrnes, 10,927; Mr. Camp, 10,491; Mr. Cederdahl, 3,150; Ms. Franklin, 10,799;26,124; Mr. Nason, 6,865;17,441; Mr. Regnell, 5,371;Nolan, 5,278; Mr. Russell, 6,865; Ms. White, 9,543;Riffee, 3,525; Mr. Winns, 5,523;15,913; and all trustees and executive officers as a group, 74,905. 83,958. |
| |
| (2) | Ms. Goitia is a new nominee for the Board. |
| |
| (3) | Mr. Morey resigned on July 26, 2016. The shares reflected in the table are as of his Section 16 exit filing. |
| |
| (4) | As a former Executive Officer, Mr. Morey is not included. As a trustee nominee, Ms. Goitia is also not included. As her employment did not begin until after the Record Date, Ms. Fielder is also not included. |
5% Shareholder Ownership of Common Shares by Certain Beneficial Owners
Washington REIT, based upon Schedules 13G filed with the SEC, believes that the following persons currently beneficially own more than five percent5% of the outstanding common shares.
|
| | |
NAME
| SHARES OWNED | PERCENTAGE OF TOTAL |
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
| 8,641,741 (1) | 13.0% |
Thornburg Investment Management Inc. 2300 North Ridgetop Road
Sante Fe, NM 87506 | 5,723,233 (2) | 8.6% |
BlackRock, Inc.
40 East 52nd Street
New York, NY 10022
| 5,411,871 (3) | 8.1% |
Vanguard Specialized Funds - Vanguard REIT Index Fund
100 Vanguard Blvd.
Malvern, PA 19355
| 4,495,931 (4) | 6.7% |
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
| 4,228,620 (5) | 6.3% |
|
| | | |
| NAME AND ADDRESS OF BENEFICIAL OWNER | AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP | PERCENTAGE OF CLASS |
The Vanguard Group, Inc. 100 Vanguard Blvd. Malvern, PA 19355 | 11,403,495 | (1) | 15.2% |
Invesco Ltd. 1555 Peachtree Street, NE, Suite 1800 Atlanta, GA 30309 | 6,983,209 | (2) | 9.3% |
BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | 6,502,680 | (3) | 8.7% |
Vanguard Specialized Funds - Vanguard REIT Index Fund 100 Vanguard Blvd. Malvern, PA 19355 | 5,591,350 | (4) | 7.4% |
Thornburg Investment Management Inc. 2300 North Ridgetop Road Santa Fe, NM 87506 | 4,646,845 | (5) | 6.2% |
| |
| (1) | Based upon Schedule 13G/A filed February 12, 2014. These securities are owned by various individual and institutional investors for which10, 2017. The Vanguard Group, Inc. serveshas sole voting power with respect to 203,960 of these shares, shared voting power with respect to 87,824 of these shares, sole dispositive power with respect to 11,211,001 of these shares and shared dispositive power with respect to 192,494 of these shares. The Schedule 13G/A further indicated that Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard, as a result of serving as investment adviser with power to direct investments and/or power to votemanager of collective trust accounts, beneficially owned 104,670 shares of Washington REIT, and Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of Vanguard, as a result of its serving as investment manager of Australian investment offerings, is the securities.beneficial owner of 187,114 shares of Washington REIT. |
| |
| (2) | Based upon Schedule 13G13G/A filed January 21, 2014.February 8, 2017. Invesco Ltd. has sole voting power with respect to 3,324,141 of these shares, shared voting power with respect to none of these shares, and sole dispositive power with respect to 6,983,209 of these shares. The Schedule 13G/A further indicated that the following subsidiaries of Invesco acquired the shares report of the Schedule 13G/A: Invesco Advisers, Inc., Invesco Investment Advisers, LLC and Invesco PowerShares Capital Management LLC. |
| |
| (3) | Based upon Schedule 13G/A filed January 31, 2014.27, 2017. BlackRock, Inc. has sole voting power with respect to 6,310,117 of these shares, shared voting power with respect to none of these shares, and sole dispositive power with respect to 6,502,680 of these shares. The Schedule 13G further indicated that the following subsidiaries of Blackrock acquired the shares reported on the Schedule 13G: BlackRock (Netherlands) B.V., BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Asset Management North Asia Limited, BlackRock Asset Management Schweiz AG, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Fund Managers Ltd, BlackRock Institutional Trust Company, N.A., BlackRock International Limited, BlackRock Investment Management (Australia) Limited, BlackRock Investment Management (UK) Ltd, BlackRock Investment Management, LLC, BlackRock Japan Co Ltd and BlackRock Life Limited. |
| |
| (4) | Based upon Schedule 13G/A filed February 4, 2014.14, 2017. Vanguard Specialized Funds - Vanguard REIT Index Fund has sole voting power with respect to 5,591,350 of these shares and sole and shared dispositive power with respect to none of these shares. |
| |
| (5) | Based upon Schedule 13G13G/A filed February 12, 2014. These securities are owned by various individual8, 2017. Thornburg Investment Management Inc. has sole voting power with respect to 4,646,845, and institutional investors for which T. Rowe Price Associates, Inc. (Price Associates) serves as investment advisersole dispositive power with powerrespect to direct investments and/or power4,646,845 of these shares. |
PROPOSAL 4: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
Description of Proposal
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") and Section 14A of the Securities Exchange Act, we provide our shareholders, annually, with the opportunity to vote, on an advisory basis, on the compensation of our named executive officers, or NEOs, as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. This proposal is commonly known as a say-on-pay proposal.
Please review the sections of this Proxy Statement entitled “Compensation Discussion and Analysis” for additional details regarding our executive compensation program. Please note, in particular the portion entitled “CD&A Executive Summary” on page 30whichdescribes significant components of our executive compensation program and actions taken by the Compensation Committee during and with respect to the 2016 compensation year.
We are asking our shareholders to indicate their support for our NEO compensation as described in this Proxy Statement. This proposal gives our shareholders the opportunity to express their views on our NEO compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we will ask our shareholders to vote FOR the following resolution at the Annual Meeting:
“RESOLVED, that Washington REIT's shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in Washington REIT's Proxy Statement for the 2017 Annual Meeting of Shareholders, pursuant to the compensation disclosure rules of the Securities and Exchange Commission (Item 402 of Regulation S-K), including the
securities. For the purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis, the 2016 Summary Compensation Table and narrative discussions and the other related tables and disclosure.”
As provided by the Dodd-Frank Act, this vote is advisory, and therefore not binding on Washington REIT, the Board or the Compensation Committee. However, the Board and Compensation Committee value the views of our shareholders and to the extent there is any significant vote against the NEO compensation as disclosed in this Proxy Statement, we will consider our shareholders' concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Voting Matters
Under our bylaws, approval of the say-on-pay proposal requires the affirmative vote of a majority of the votes cast. A majority of votes cast means that the number of votes "FOR" a proposal must exceed the number of votes "AGAINST" that proposal. Abstentions and other shares not voted (whether broker non-votes, if any, or otherwise) will not be counted as votes cast and will have no effect on the result of this vote.
Notwithstanding the approval requirements set forth in the previous paragraph, the vote remains advisory, and the Board and Compensation Committee value the opinions of our shareholders regardless of whether approval (as defined in the previous paragraph) is actually obtained.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC.
COMPENSATION DISCUSSION AND ANALYSIS
CD&A Executive Summary
The primary goals of our executive compensation program are to attract and retain the best executive talent and to align the interests of our executives with those of our shareholders. In 2014, we enhanced our executive compensation program to further align our executives' and shareholders' interests. These enhancements, as well as a summary of some of the key attributes - what we do and what we don’t do - that define our program, are set forth below.
Key Components: The following are key components of our executive compensation program:
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CD&A Executive Summary | |
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The objectives of our executive compensation program are - |
ŸWHAT WE DO | to allow Washington REIT to attract and retain talented executives |
Ÿ | to provide incentives to achieve various financial performance objectives and strategic initiatives, and |
ŸWHAT WE DON’T DO | to link compensation to shareholder results by rewarding competitive and superior performance. |
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The Compensation Committee designed our compensation program to rewardWe pay for performance, with the achievement of specific annual and long-term goals by providing thevast majority of any executive officer’s total compensation in the form of variable paybeing based on financial performance. The Compensation Committee believesperformance | | Our STIP and LTIP do not provide awards that are solely based on time served (we eliminated this design motivates performance consistent with Washington REIT's short- and long-term business objectives.practice from our STIP in 2014) | |
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The Compensation Committee undertook the following actions with respect to the short-term incentive plan ("STIP") - | | | |
Ÿ | Established challengingWe use multiple performance metrics in our STIP guideline target performance levels for 2013 for Core– core FFO per share, Corecore FAD per share and same-store NOI growth of $1.83, $1.46 and 0.9%, respectively |
| | ¡ | Core FFO and FAD per share guideline target performance levels reflect adjustments by the Compensation Committee for the actual timing of the medical office division sale and related reinvestment of proceeds, because the timing of these events was significantly outside of the control of management |
| ¡ | the STIP guideline target performance levels wereWe do not adjusted to reflect the ongoing slowdown in the Washington, D.C. area commercial real estate industry |
Ÿ | Recognized final STIP Core FFO per share, Core FAD per share and same-store NOI growth performance levels of $1.79, $1.27 and -0.4%, respectively |
| ¡ | in recognition of such financial performance, the Compensation Committee determined a combined score for the financial goals (60% weighting) portion of the STIP at a level of 1.0 (on a scale of 1 to 3, with 3 being the highest level of achievement) |
| ¡ | the 1.0 score for the aggregate financial goals was the lowest possible level of achievement which still permitted a payout under the STIP |
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The Compensation Committee undertook the following actionsprovide tax gross ups with respect to the long-term incentive plan ("LTIP") - |
Ÿpayments made in connection with a change in control | Determined a 1.0 score (on a scale of 1 to 3, with 3 being the highest level of achievement) with respect to the strategic plan fulfillment goal for the three-year performance period which ended at year end 2013 |
| ¡ | in making such determination, the Compensation Committee recognized (among other factors) management’s achievement of two entire division sales during the three-year period, representing approximately one-third of Washington REIT’s real estate portfolio |
| ¡ | the 1.0 score for the strategic plan fulfillment goal portion of the LTIP was the lowest possible level of achievement which still permitted a payout under the LTIP |
| Á | consistent with the LTIP terms, no awards were made with respect to the relative or absolute total shareholder return (TSR) portions of the LTIP |
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The Compensation Committee determined 2013 salary levels to be the same as 2012. As a result, there were no executive officer salary raises | We use TSR – and only TSR – in 2013.our LTIP (we started this practice in 2014) | | We do not allow hedging or pledging of our shares | |
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Lastly, the Board adopted the following policies in 2013: | | |
Ÿ | We have implemented a "clawback"clawback policy (see "Additional Executive Compensation Matters - Clawback Policy" below)applicable to our executives | | We do not guarantee minimum STIP or LTIP payouts or annual salary increases | |
Ÿ | a hedging prohibition policy (see "Additional Executive Compensation Matters - Hedging Prohibition Policy" below") | | | |
| We have robust share ownership guidelines (which apply to officers and Board members)
| | We do not pay dividends on performance-based restricted shares until the performance period ends | |
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STIP/LTIP Enhancements: We made several important modifications to our STIP and LTIP in 2014, as follows -
We converted a 15% portion of our annual STIP award that was purely service-based to be performance-based, with the result that 100% of the STIP is now performance-based;
We eliminated a 20% subjective goal in our STIP tied to acquisition/disposition activity, with the result that 75% of our STIP awards are now financial goals based on core FFO, core FAD and same-store NOI growth performance metrics (up from 60%), and
We eliminated a 60% subjective goal in our LTIP tied to strategic plan fulfillment activity, with the result that 100% of our LTIP awards are now based on absolute and relative TSR.
Say-On-Pay Results and Consideration
Because the 2016 say-on-pay proposal received the approval of more than 97% of our shareholders who cast a vote, the Compensation Committee considered such results but did not implement changes to our executive compensation program
motivated by the shareholder advisory vote. As noted above, the Compensation Committee made significant changes to our STIP and LTIP in 2014 motivated by its desire to continually enhance the alignment of our executives to our shareholders.
After the Annual Meeting, and after reviewing the results of the advisory vote discussed in Proposal 5 below, the Board will decide how often, until the next required vote regarding the frequency of “say on pay” votes is conducted, Washington REIT will hold future “say on pay” votes.
Compensation Objectives and Peer Group AnalysisComponents
Washington REIT'sWe believe that the primary goal of executive compensation is to attract and retain the best executive talent and align the interests of our executive officers with those of our shareholders. We think attracting and retaining executive talent is imperative to creating long-term value for our shareholders. We believe providing salaries that fairly reward executives for their value to the organization is a critical base element of compensation. We view performance-based compensation as a means to further motivate and reward our executives for achievement of our financial objectives. As a result, a substantial portion of our executive compensation program is performance-based.
Our executive compensation program primarily consists of base salary, theour short-term incentive plan (the "STIP") and theour long-term incentive plan (the "LTIP"). The STIP consists of annual cash and restricted share awards. The LTIP consists of awards of unrestricted shares and restricted shares. The objectivesadditional components of our executive compensation program are to described below under “- Other Executive Compensation Components.”
allow Washington REIT to attract and retain talented executives
provide incentives to achieve various financial performance objectives and strategic initiatives, and
link compensation to shareholder results by rewarding competitive and superior performance.
The Compensation Committee designed ourmakes compensation program to reward the achievementdecisions after careful analysis of specific annualperformance information and long-term goals by providing the majority ofmarket compensation in the form of variable pay that is based on financial performance. The Compensation Committee believes this design motivates performance consistent with Washington REIT's short- and long-term business objectives.
data. In developing our executive compensation program, the Compensation Committee established the following compensation guidelines:
executive base salaries should generally approximate the median, but there should also be flexibility to address particular individual circumstances that might require a different result, and
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| • | total direct compensation should approximate the 75th percentile of the peer group only in circumstances where management has achieved “top level performance” in operational performance and strategic initiatives. |
ForAn executive’s salary and total direct compensation are not mechanically set to be a particular percentage of the 2011 - 2013 period,peer group average. Instead, the Compensation Committee reviews the executive’s compensation relative to the peer group to help the Compensation Committee perform its overall analysis of the compensation opportunity for each executive. Peer group data is not used as the determining factor in setting compensation because (1) the executive’s role and experience within the company may be different from the officers at the peer companies, (2) the compensation for officers at the peer companies may be the result of over- or under-performance and (3) the Compensation Committee believes that ultimately the decision as to appropriate target compensation for a particular executive should be based on its own business judgment with respect to the compensation opportunity for each executive, taking into account advice from FPL Associates L.P., as noted below.
2016 Omnibus Incentive Plan
At our annual meeting of shareholders in 2016, our shareholders approved our 2016 Omnibus Incentive Plan, pursuant to which we may grant equity awards in respect of up to 2,400,000 of our common shares. Effective as of the approval of our 2016 Omnibus Incentive Plan, no new awards may be granted under our 2007 Omnibus Incentive Plan, our legacy equity incentive plan.
Role of Compensation Consultant and Peer Group Analysis
The Compensation Committee engaged the services of FPL Associates L.P., as an independent executive compensation consultant, to provide advice and counsel in carrying out its duties. FPL Associates L.P. provided the Compensation Committee with market data on executive pay practices and levels and provided recommendations regarding the structure of the STIP and LTIP.
The Compensation Committee worked with FPL Associates L.P. to develop a comparative group of companies and conduct a market analysis of executive compensation practices and pay levels based on this group. The Compensation Committee used the 20-company13-company peer group set forth below for comparative purposes in determining future executive compensation.this purpose. Due to Washington REIT's unique property-type diversification and geographic focus, it is difficult to build a peer group that matches Washington REIT's exact business model. The Compensation Committee's comparison was based on survey data compiled by FPL Associates L.P., in its capacity as an independent consultant serving the Compensation Committee. FPL Associates L.P. compared the compensation of Washington REIT's named executive officersNEOs listed in the Summary Compensation Table on page 31 (NEOs)53 to the compensation of similarly situated executives employed by companies in the NAREIT compensation survey and the 20-company13-company peer group. The companies in the selected group vary in size, both smaller and larger than Washington REIT, but were recommended by FPL Associates L.P. as appropriate comparable companies based on their approximate size and the complexity of their real estate businesses. The 20-company13-company peer group set forth below waswill also be utilized for the relative total shareholder return component of the LTIP.LTIP for periods that commenced on January 1, 2017, as described below on page 38.
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| Brandywine Realty Trust | Eastgroup Properties, Inc. | Home Properties Inc. | PS Business Parks, Inc. |
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Corporate Office Properties Trust | Equity One, Inc. | Lexington Realty Trust | Realty Income Corporation |
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Cousins Properties Incorporated | FederalCedar Realty Investment Trust | Liberty Property Trust | Regency Centers Corporation |
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DCT Industrial Trust Inc. | First Potomac Realty Trust | National RetailLiberty Property Trust |
| Columbia Property Trust | First Industrial Realty Trust, Inc. | Mack-Cali Realty Corporation |
| Corporate Office Properties Trust | Highwoods Properties, Inc. | Saul Centers,Piedmont Office Realty Trust, Inc. |
| | Cousins Properties Incorporated | | |
Duke Realty Corporation | Highwoods Properties Inc. | Post Properties, Inc. | Weingarten Realty Investors |
FPL Associates L.P.'s data compared the compensation of Washington REIT officers based on base salary and total direct compensation, which included base salary, annual incentive compensation and an annualized present value of long-term incentive compensation. The Compensation Committee considers the amount and mix of base and variable compensation by referencing, for each executive level and position, the prevalence of each element and the level of compensation that are provided in the market based on the FPL Associates L.P. comparison analysis.
The Compensation Committee takes into account current financial performance in its evaluation of executive compensation. In particular, the Compensation Committee takes into account current financial performance, represented by core FFO per share, core FAD per share and same-store NOI growth, in determining payouts under the payouts of short-term and long-term incentives.
Base Salary
STIP. The Compensation Committee reviewsdoes not delegate any of its principal functions or responsibilities.
Role of Executives
The Compensation Committee believes management input is important to the overall effectiveness of Washington REIT's executive compensation program. The Compensation Committee believes the advice of an independent consultant should be combined with management input and approves salary recommendations annually. For 2013,the business judgment of the Compensation Committee determined base salaries based onmembers to arrive at a proper alignment of compensation philosophy, programs and practices.
The Chief Executive Officer and the considerations described above. In particular,Executive Vice President and Chief Financial Officer are the management members who interact most closely with the Compensation Committee. These individuals work with the Compensation Committee actingto provide their perspective on aligning compensation strategies with our business strategy and on how well our compensation programs appear to be working.
Base Salary
During 2016, the Compensation Committee, with assistance from FPL, undertook an extensive review of the pay levels of our NEOs and noted that, in consultationgeneral, the levels of base salary ranked materially below the market median of our peers. Although the base salary levels did not change between 2014 and 2015, the Compensation Committee felt that an adjustment was appropriate for 2016 in order to better align with FPL Associates L.P., electedWashington REIT's compensation philosophy in which we seek to maintain 2012 levels forapproximate the market median across the collective NEO group. In addition, the Compensation Committee also took into account the broader risk-reward profile of the compensation program in which the majority of compensation is tied to incentive pay that may be considered to be “at-risk”. The base salaries of thefor our NEOs, as determined by our Compensation Committee for our Chief Executive Officer the twoand our Chief Executive Officer for our Executive Vice Presidents, and the threewere as follows.
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| Position (1) | Name | 2016
Base Salary (2) | 2015
Base Salary | 2014
Base Salary | 2016 % Change from 2015 | 2015 % Change from 2014 |
| Chief Executive Officer | Paul T. McDermott | $ | 650,000 |
| $ | 500,000 |
| $ | 500,000 |
| 30 | % | 0 | % |
| Executive Vice President | Thomas Q. Bakke | 425,000 |
| 350,000 |
| 350,000 |
| 21 | % | 0 | % |
| Executive Vice President | Stephen E. Riffee | 425,000 |
| 400,000 |
| N/A |
| 6 | % | N/A |
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(1) As described below, Thomas C. Morey served as Senior Vice Presidents. AsPresident during a result, the 2013 base salaries determined by the Compensation Committee were $500,000 for the Chief Executive Officer, $350,000 for eachportion of the two
Executive Vice Presidents and $288,000 for each of the three Senior Vice Presidents. These salary levels, when they were set in 2012, were intended to ensure that executive salaries generally approximate the median of the peer group.
Based on the fair value of equity awards granted to the NEOs in 2013 and the2016 at a base salary of the NEOs, salary accounted for approximately 40% of the total compensation of the NEOs while incentive and other compensation accounted for approximately 60% of the total compensation.$288,000 per annum. Mr. Morey resigned on July 26, 2016.
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| (2) | Base salaries of our NEOs were increased on July 1, 2016. |
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The Compensation Committee, acting in consultation with FPL Associates L.P., reviews and approves salary recommendations annually based on the considerations described above. The 2016 compensation for each of our NEOs was determined based on a review of publicly disclosed compensation packages of executives of other public real estate companies and were intended to ensure that executive salaries generally approximate the median of the peer group. Based on the fair value of equity awards granted to the NEOs in 2016 and the base salary of the NEOs, salary accounted for approximately 24%. | |
Short-Term Incentive Plan (STIP)
Plan Summary
Under the STIP as it existed in 2013, executives were provided the opportunity to earn awards, payable 50% in cash and 50% in restricted shares, based on achieving various performance objectives within a one-year performance period (except for a portion of such restricted share awards equivalent to 15% of an executive's base salary which were exclusively service-based). Each executive's total award opportunity under the STIP, stated as a percentage of base salary, for the achievement of threshold, target and high performance requirements is set forth in the table below:
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| | | Cash Component (50%) | | Restricted Share Component (50%) |
| | | Threshold | Target | High | | Threshold | Target | High |
| President and Chief Executive Officer (1) | Performance-based | 58% | 113% | 195% | | 43% | 98% | 180% |
| | Service-based | —% | —% | —% | | 15% | 15% | 15% |
| Executive Vice President | Performance-based | 48% | 93% | 160% | | 33% | 78% | 145% |
| | Service-based | —% | —% | —% | | 15% | 15% | 15% |
| Senior Vice President | Performance-based | 35% | 65% | 115% | | 20% | 50% | 100% |
| | Service-based | —% | —% | —% | | 15% | 15% | 15% |
(1) These percentages reflect the standard percentages under the STIP with respect to the CEO position. With respect to Mr. McKenzie only for the year 2013, please refer to “Departing CEO Compensation Agreements.”
STIP performance was evaluated on the following performance goals and weightings:
Financial Goals (60%)
•Core funds from operations (FFO) per share
•Core funds available for distribution (FAD) per share
•Same-store net operating income (NOI) growth
Our performance under these metrics was judged by the Compensation Committee in the aggregate and their aggregate weighting equaled 60%. The specific guideline target, threshold and high levels underlying the aggregate financial performance goals were set by the Compensation Committee within the first 90 days of the one-year performance period (taking into account input from the Board and the Chief Executive Officer). At the completion of the one-year performance period, fulfillment of our financial performance goals was evaluated in the aggregate by the Compensation Committee in its discretion (taking into account input from the Board and a written presentation on satisfaction of such financial performance goals provided by the Chief Executive Officer). At the conclusion of the performance period, the Compensation Committee evaluated aggregate financial goal performance on a scale of 1 (threshold), 2 (target) or 3 (high). The Compensation Committee's evaluation included an assessment of our absolute performance, our performance relative to other companies in our industry, the challenges faced by us and/or the positive external circumstances that may have beneficially impacted our performance. If achievement of the aggregate financial goal performance fell below threshold level (i.e., rated by the Compensation Committee below a level of 1), the portion of the award that was dependent on aggregate financial goal performance would not be paid.
Core FFO per share is calculated by adjusting FFO per share for (1) gains or losses on extinguishment of debt, (2) costs related to the acquisition of properties, (3) severance expense related to corporate reorganization and related to the CEO's retirement, and (4) property impairments not already excluded from FFO, as appropriate. Core FAD per share is calculated by adjusting FAD per share for (1) cash gains or losses on extinguishment of debt, (2) costs related to the acquisition of properties, (3) non-share-based severance expense related to corporate reorganization and related to the CEO's retirement, and (4) property impairments not already excluded from FAD, as appropriate. Core FFO per share and Core FAD per share under the STIP are interpreted to exclude the impact of the two-class method as defined in generally accepted accounting
principles when computing earnings per share. NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain on sale, if any), plus interest expense, depreciation and amortization and general and administrative expenses. For purposes of evaluating comparative operating performance, we categorize our properties as “same-store” or “non-same-store”. A same-store property is one that was owned for the entirety of the periods being evaluated and excludes properties under redevelopment or development and properties purchased or sold at any time during the periods being compared. A "non-same-store" property is one that was acquired, under redevelopment or development, or placed into service during either of the periods being evaluated. We define redevelopment properties as those for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan which has a current impact on operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. Properties under redevelopment or development are included within the non-same-store properties beginning in the period during which redevelopment or development activities commence. Redevelopment and development properties are included in the same-store pool upon completion of the redevelopment or development, and the earlier of achieving 90% occupancy or two years after completion.
FFO per share has wide acceptance as a reported measure of REIT operating performance. FFO per share is equal to a REIT's net income, excluding gains or losses from sales of property, impairment of depreciable real estate and real estate depreciation and amortization. FAD per share is calculated by subtracting from FFO per share (1) recurring expenditures, tenant improvements and leasing costs that are capitalized and amortized and are necessary to maintain our properties and revenue stream, and (2) straight line rents, then adding (3) non-real estate depreciation and amortization, (4) non-cash fair value interest expense, and (5) amortization and expensing of restricted share and unit compensation and adding or subtracting (6) non-cash gain/loss on extinguishment of debt, as appropriate, and (7) the amortization of lease intangibles, as appropriate.
Acquisition/Disposition (20%) and Individual Goals (20%)
•Strategic acquisition/disposition activity
•Individual objectives
At the completion of the one-year performance period, fulfillment of the foregoing goals was evaluated (1) with respect to strategic acquisition/disposition activity, by the Compensation Committee in its discretion, taking into account input from the Board and a written presentation on strategic acquisition/disposition activity provided by the Chief Executive Officer (this goal carried a 20% weighting), and (2) with respect to individual objectives, by the Compensation Committee in its discretion with respect to the Chief Executive Officer and by the Chief Executive Officer in his discretion with respect to all other executives (this goal also carried a 20% weighting). At the conclusion of the one-year performance period, the Compensation Committee or Chief Executive Officer, as applicable, evaluated performance on a scale of 1 (threshold), 2 (target) or 3 (high). If achievement of an acquisition/disposition or individual goal fell below threshold level, the portion of the award that was dependent on the acquisition/disposition or individual goal would not be paid.
The financial, acquisition/disposition and individual performance goals were re-evaluated on an annual basis as to their appropriateness for use in subsequent annual programs under the STIP based on any potential future changes in Washington REIT business goals and strategy. Any modification was approved by the Compensation Committee and Board.
With respect to the 50% of the STIP award payable in restricted shares, the restricted shares (i) vest over a three-year period commencing on the January 1 following the end of the one-year performance period (or, in the case of the service-based restricted shares component, on January 1 of the one-year performance period), (ii) consisted of a number of shares determined by dividing the dollar amount payable in restricted shares by the closing price per share on such January 1 (or, in the case of the service-based restricted shares component, on January 1 of the one-year performance period) and (iii) were issued within 2 1/2 months of the end of the one-year performance period (or, in the case of the service-based restricted shares component, as of January 1 of the one-year performance period). The restricted shares were awarded out of and in accordance with Washington REIT's 2007 Omnibus Long Term Incentive Plan. Washington REIT pays dividends currently on the restricted shares described in this paragraph. Because performance-based restricted shares under the STIP were only issued after the one-year performance period had ended, no dividends were paid on performance-based restricted shares until the actual performance had been achieved.
If, during the three-year vesting period for the restricted shares described in the previous paragraph, the executive's employment is terminated by Washington REIT without Cause, or the executive resigns for Good Reason, retires, dies or becomes subject to a Disability while employed by Washington REIT, or a Change in Control occurs, the restricted shares awarded under the STIP would immediately vest. “Retire” in this context means to resign after reaching age 65 or after
reaching age 55 and working at Washington REIT for at least 20 years.“Cause,” “Good Reason,” Disability” and “Change of Control” have the meanings set forth in the STIP.
With respect to the 50% of the award payable in cash under the STIP, 100% of such cash portion was payable within 2 1/2 months of the end of the performance period. The executive could elect to defer 100% ofthe cash portion pursuant to Washington REIT's Deferred Compensation Plan for Officers. If the executive made such election, the cash was converted to restricted share units and Washington REIT would match 25% of deferred amounts in restricted share units.
The executive was required to be employed on the last day of the performance period to receive a performance-based STIP award, subject to the following exceptions. If during the performance year, the executive's employment was terminated by Washington REIT without Cause, or the executive resigned for Good Reason, retired, died or became subject to a Disability while employed by Washington REIT, the executive would receive an award under the STIP calculated based upon actual results for the full one-year performance period, but the award would be prorated based on the period of employment during the one-year performance period through the date of such event and the portion of the award paid in restricted shares would immediately vest. If a Change in Control occurred during the one-year performance period, the performance goals under the STIP would be prorated based on the period of time during the one-year performance period through the date of the Change in Control, the executive would receive a performance-based award under the STIP that was prorated based on the period of employment during the one-year performance period through the date of the Change in Control and the portion of the award paid in restricted shares would immediately vest.
2013 STIP Determinations by Compensation Committee
In the case of Core FFO per share, Core FAD per share and same-store NOI growth objectives, management proposed guidelines for measuring threshold, target and high performance levels based on Washington REIT's business projection and budget materials. These guidelines were then extensively reviewed by the Compensation Committee and subsequently approved. As originally approved by the Compensation Committee at the beginning of 2013, the Core FFO per share and Core FAD per share guideline targets were $1.86 and $1.49, respectively. At the time that these guidelines were approved, however, management was in the process of initiating a strategically-desirable sale of its medical office division and a related reinvestment of the proceeds. The Compensation Committee determined that the exact timing of these events were beyond the control of management, but would directly affect the Core FFO per share and Core FAD per share guidelines (because, depending upon the particular timing of the sale of medical office assets and related reinvestment, Washington REIT could have significantly greater or smaller Core FFO per share and Core FAD per share). As a result, the Compensation Committee determined, at the time the guidelines were initially approved, to adjust the Core FFO per share and Core FAD per share guidelines based on the final timing of the sale and reinvestment, as determined by the Compensation Committee at the end of the year. For the avoidance of doubt, the Core FFO per share and Core FAD per share guidelines were not adjusted to reflect the ongoing slowdown in the Washington, D.C. area commercial real estate industry.
The resulting guidelines for each of the financial goals across threshold, target, and high performance levels under the STIP (and reflecting the medical office sale and reinvestment timing adjustments noted above) are presented in the table below, along with the 2013 actual results:
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| | Threshold | Target | High | Final Results Recognized by the Committee |
| Core FFO per share | $1.74 | $1.83 | $1.92 | $1.79 |
| Core FAD per share | $1.39 | $1.46 | $1.53 | $1.27 |
| Same-store NOI growth | (2.3)% | 0.9% | 4.2% | (0.4)% |
In making its assessment of the performance of financial goals, the Compensation Committee noted that actual performance on one goal was below the guideline target performance level, but actual performance on the two other goals were above the guideline threshold performance level. In recognition of such performance, the combined score for the financial goals (60% weighting) portion of the STIP was determined by the Compensation Committee at a level of 1.0 (on a scale of 1 to 3, with 3 being the highest level of achievement). The 1.0 score for the aggregate financial goals was at the lowest possible level which permitted a payout. Although the Compensation Committee has the ability to subjectively adjust its scoring of the satisfaction of the financial goals in light of factors directly outside the executives' control (e.g., market based conditions), in arriving at the score for this portion of the STIP, the Compensation Committee made no such adjustments or positive consideration to account for what was widely considered to be an extensively challenged commercial real estate environment in Washington, D.C. for Washington REIT due to federal budget uncertainty.
In the case of the strategic acquisition/disposition activity goal (20% weighting), the Compensation Committee reviewed the level of Washington REIT activity in this area over the course of 2013. In particular, the Committee noted that in 2013 management initiated a sale of the medical office division, but did not complete the reinvestment of proceeds from such sale. As a result, the Compensation Committee assessed management's acquisition/disposition activity to be below target level of performance, and awarded an achievement level of 1.0 (on a scale of 1 to 3, with 3 being the highest level of achievement). Similar to the financial goals, the 1.0 score for the strategic acquisition/disposition activity goal was at the lowest possible level which still permitted a payout.
In the case of individual objectives, the objectives were set by the participant's supervisor or, in the case of the Chief Executive Officer, by the Compensation Committee. The participant's supervisor or, in the case of the Chief Executive Officer, the Compensation Committee determined each participant's actual accomplishment compared to the objectives for such participant. For 2013, the individual objectives for each NEO were as follows:
Mr. McDermott began his service as Washington REIT’s chief executive on October 1, 2013, and did not participate in the STIP in 2013. His compensation arrangements are described more fully under “New CEO Compensation Arrangements.”
Mr. McKenzie ended his service as Washington REIT’s chief executive on September 30, 2013. His STIP participation and specialized individual objectives are set forth under “Departing CEO Compensation Arrangements.”
Mr. Camp's objectives included (i) managing the team responsible for the medical office division, analyzing offers and alternatives to optimize sales strategy and monitoring credit line and senior notes compliance, (ii) managing review of the medical office sales proceeds reinvestment and managing the due diligence team to ensure successful underwriting, (iii) determining retention, NOI and occupancy goals for the office and medical office divisions and completing a restructuring of the office division, (iv) working with the office division to foster higher client service, tenant retention and internal and external teamwork, and various other staffing matters, and (v) professional development activity, including expanding his knowledge in critical processes of the firm and industry relationships.
Ms. Franklin's objectives included (i) financial/tax activity, including coordinating timely SEC and regulatory filings, ensuring operational and financial controls and assisting with tax matters related to the medical office division sale, (ii) organizational and administration activity, including matters related to the medical office division sale, launching an accounts receivable initiative, ensuring readiness for impact of new healthcare laws, and supporting the Board and its committees, and (iii) technology activity, including customer retention system implementation.
Mr. Cederdahl's objectives included (i) leading the property management, engineering, energy and environmental, and construction and architecture groups in support of the medical office sale and related reinvestment, (ii) growing antenna revenue, establishing a specialty leasing division, managing operational expenses, increasing tenant satisfaction and retention, and prioritization of income-generating capital expenditures, (iii) industry leadership through taking a more active role in various organizations and growing Washington REIT’s sustainability initiatives, and (iv) various administrative and coordination activities among the groups reporting to Mr. Cederdahl.
Mr. Regnell's objectives included (i) providing guidance and support to the medical office division sale, (ii) completion of acquisitions in order to achieve the reinvestment of the medical office division sale, (ii) operational activity, including implementation of an asset management model, leasing vacancies, achieving targeted net operating income and maintaining satisfactory tenant retention, (iii) industry leadership through outreach and representation at industry organizations, and (iv) fostering teamwork within the office division, mentoring the office division team to improve customer focus and various personnel matters.
The actual payout amounts for 2013 under the STIP are presented in the Summary Compensation Table and related footnotes within this Proxy Statement.
At the request of the Compensation Committee, an internal audit was performed to review management's calculations for the STIP to confirm that they comply with the STIP. This internal audit was then presented to the Compensation Committee for its review and acceptance.
Revised 2013 STIP for Departing CEO
The STIP was amended, with respect to Mr. McKenzie only, for the year 2013. Such amendments related to the performance goals, weightings and award opportunities under the STIP for 2013. For a complete description, please refer to “Departing CEO Compensation Arrangements.”
Future STIP Modification
On March 27, 2014, the Compensation Committee amended the STIP as follows (which will be effective in 2014) -
The performance goals and weightings of the STIP will be revised as follows -
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◦ | Financial goals will have a 75% weighting (rather than 60%, as the STIP previously provided), comprised of the following three metrics - |
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◦ | Individual goals will have a 25% weighting. |
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◦ | As a result, there will no longer be a strategic acquisition/disposition activity goal (which, under the previous STIP, had been weighted at 20%). |
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• | With respect to the restricted shares component of the STIP award, there will no longer be a service-based portion equivalent to 15% of an executive’s base salary. As a result, the entire restricted shares component of each STIP award (which constitutes 50% of each annual STIP award) will be performance-based. As a further result, the entire restricted shares component of each STIP award will (i) vest over a three-year period commencing on the January 1 following the end of the one-year performance period, (ii) consist of a number of shares determined by dividing the dollar amount payable in restricted shares by the closing price per share on such January 1 and (iii) be issued within 21/2 months of the end of the one-year performance period. Washington REIT will continue to pay dividends currently on the restricted shares described in this paragraph. Because the performance-based restricted shares under the STIP will only be issued after the one-year performance period has ended, no dividends will be paid on performance-based restricted shares until the actual performance had been achieved.
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The remaining components of the previous STIP (for example, treatment upon termination, treatment upon Change of Control and evaluation mechanisms for goal fulfillment) will generally be maintained.
Long-Term Incentive Plan (LTIP)
Plan Summary
Under the LTIP,STIP, executives wereare provided the opportunity to earn awards, payable 50% in unrestricted sharescash and 50% in restricted shares, based on achieving various performance objectives within a one-year performance period. The cash component of the award is paid following completion of the one-year performance period. The restricted shares are subject to a ratable vesting schedule that runs for three years from the January 1 following completion of the one-year performance period. Each executive's total award opportunity under the STIP, stated as a percentage of base salary, for the achievement of threshold, target and high performance requirements is set forth in the table below:
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| | | | | | | |
| | Cash Component (50%) | | Restricted Share Component (50%) |
| | Threshold | Target | High | | Threshold | Target | High |
| President and Chief Executive Officer | 58% | 113% | 195% | | 58% | 113% | 195% |
| Executive Vice President (1) | 48% | 93% | 160% | | 48% | 93% | 160% |
| Senior Vice President | 35% | 65% | 115% | | 35% | 65% | 115% |
| (1) Effective January 1, 2017, the separate award opportunities for Mr. Riffee under the STIP and LTIP were eliminated so that all Executive Vice Presidents now have the same LTIP and STIP opportunities. |
Overall STIP performance is evaluated on the following performance goals and weightings:
Financial Goals (75%)
The financial goals component of the STIP is comprised of the following three metrics:
Core funds from operations (FFO) per share;
Core funds available for distribution (FAD) per share; and
Same-store net operating income (NOI) growth.
Our performance under these metrics is judged by the Compensation Committee in the aggregate and their aggregate weighting equals 75%. The Compensation Committee establishes guideline expectations for each performance metric but does not establish specific target, threshold or high performance levels underlying the aggregate financial performance goals. These guidelines were set by the Compensation Committee within the first 90 days of the one-year performance period (taking into account input from the Board and the Chief Executive Officer).
At the completion of the one-year performance period, fulfillment of our financial performance goals is evaluated in the aggregate by the Compensation Committee in its discretion (taking into account absolute performance, performance relative to other companies in the industry, challenges faced by Washington REIT and/or positive external circumstances that may have beneficially impacted Washington REIT’s performance, input from the Board and a written presentation on satisfaction of such financial performance goals provided by the Chief Executive Officer). At the conclusion of the performance period, the Compensation Committee evaluates aggregate financial goal performance on a scale of below 1 (below threshold), 1 (threshold), 2 (target) or 3 (high). If the Compensation Committee determines that achievement of the aggregate financial goal performance fell between threshold and high, the portion of the award dependent on the aggregated financial performance goal would be determined by linear interpolation (with an associated payout level in between threshold and target performance levels, or target and high performance levels, as applicable). If achievement of the aggregate financial goal performance falls below threshold level (i.e., rated by the Compensation Committee below a level of 1), the portion of the award that is dependent on aggregate financial goal performance will not be paid.
“Core FFO” is calculated by adjusting NAREIT FFO (as defined below) for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt, (2) expenses related to acquisition and structuring activities, (3) executive transition costs and severance expense related to corporate reorganization and related to executive retirements or resignations, (4) property impairments, casualty gains or losses, and gains or losses on sale not already excluded from NAREIT FFO, as appropriate, and (5) relocation expense. “NAREIT FFO” is defined by The National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) in an April 2002 White Paper as net income (computed in accordance with generally accepted accounting principles (“GAAP”)) excluding gains (or losses) associated with sales of property, impairment of depreciable real estate and real estate depreciation and amortization.
“Core FAD” is calculated by adjusting FAD (as defined below) for the following items (which we believe are not indicative of the performance of Washington REIT’s operating portfolio and affect the comparative measurement of Washington REIT’s operating performance over time): (1) gains or losses on extinguishment of debt, (2) costs related to the acquisition of properties, (3) non-share-based severance expense related to corporate reorganization and related to executive retirements or resignations, (4) property impairments, casualty gains and losses, and gains or losses on sale, not already excluded from FAD, as appropriate, and (5) relocation expense. “FAD” is calculated by subtracting from NAREIT FFO (1) recurring expenditures, tenant improvements and leasing costs, that are capitalized and amortized and are necessary to maintain our properties and revenue stream (excluding items contemplated prior to acquisition or associated with development / redevelopment of a property) and (2) straight line rents, then adding (3) non-real estate depreciation and amortization, (4) non-cash fair value interest expense and (5) amortization of restricted share compensation, then adding or subtracting the (6) amortization of lease intangibles, (7)
real estate impairment and (8) non-cash gain/loss on extinguishment of debt, as appropriate. Core FFO per share and core FAD per share under the STIP are interpreted to exclude the impact of the two-class method as defined in generally accepted accounting principles when computing earnings per share.
“Same-store NOI growth” is the change in the NOI (as defined below) of the same-store (also as defined below) portfolio properties from the prior reporting period to the current reporting period. “NOI” is a non-GAAP measure defined as real estate rental revenue less real estate expenses. NOI is calculated as net income, less non-real estate revenue and the results of discontinued operations (including the gain on sale, if any), plus interest expense, depreciation and amortization, general and administrative expenses, acquisition costs, real estate impairment, and gain or loss on extinguishment of debt. “Same-store” portfolio properties include all stabilized properties that were owned for the entirety of the current and prior reporting periods, and exclude properties under redevelopment or development and properties purchased or sold at any time during the periods being compared. We define “redevelopment” properties as those for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan which has a current impact on operating results, occupancy and the ability to lease space with the intended result of a higher economic return on the property. Redevelopment and development properties are included in the same-store pool upon completion of the redevelopment or development, and the earlier of achieving 90% occupancy or two years after completion.
Individual Goals (25%)
At the completion of the one-year performance period, fulfillment of individual goals is evaluated by the Compensation Committee in its discretion with respect to the Chief Executive Officer and by the Chief Executive Officer in his discretion with respect to all other executives (this carries a 25% weighting). At the conclusion of the one-year performance period, the Compensation Committee or Chief Executive Officer, as applicable, evaluates performance on a scale of 1 (threshold), 2 (target) or 3 (high). If achievement of individual goals falls below threshold level, the portion of the award that is dependent on individual goals will not be paid.
The financial and individual performance goals are re-evaluated on an annual basis as to their appropriateness for use with respect to the 2016 performance period and in subsequent annual programs under the STIP based on any potential future changes in Washington REIT business goals and strategy.
Vesting and Payment
With respect to the 50% of the STIP award payable in restricted shares, the restricted shares (1) vest one-third of the shares on each of the first three anniversaries of the last day of the performance period, over a three-year period commencing on the January 1 following the end of the one-year performance period, (2) consist of a number of shares determined by dividing the dollar amount payable in restricted shares by the closing price per share on January 1 following the performance period (or, if not a trading day, the first trading day thereafter), and (3) are issued within 21/2 months of the end of the one-year performance period. The restricted shares are awarded out of and in accordance with Washington REIT's 2016 Omnibus Incentive Plan. Washington REIT pays dividends currently on the restricted shares described in this paragraph. Because the restricted shares
under the STIP will only be issued after the one-year performance period has ended, no dividends will be paid on restricted shares until the actual performance has been achieved.
If, during the three-year vesting period for the restricted shares described in the previous paragraph, the executive's employment is terminated by Washington REIT without Cause, or the executive resigns for Good Reason, Retires, dies or becomes subject to a Disability while employed by Washington REIT, or a Change in Control occurs, the restricted shares awarded under the STIP will immediately vest. “Cause,” “Good Reason,” “Retire”, “Disability” and “Change in Control” have the meanings set forth in the STIP. With respect to the 50% of the award payable in cash under the STIP, 100% of such cash portion is payable within 21/2 months of the end of the performance period. The executive can elect to defer 100% ofthe cash portion pursuant to Washington REIT's Deferred Compensation Plan for Officers. If the executive made such election, the cash is converted to restricted share units and Washington REIT will match 25% of deferred amounts in restricted share units. The executive is required to be employed on the last day of the performance period to receive an STIP award, subject to the following exceptions. If during the performance year, the executive's employment is terminated by Washington REIT without Cause, or the executive resigns for Good Reason, Retires, dies or becomes subject to a Disability while employed by Washington REIT, the executive will receive an award under the STIP calculated based upon actual results for the full one-year performance period, but the award will be prorated based on the period of employment during the one-year performance period through the date of such event and the portion of the award paid in restricted shares will immediately vest. If a Change in Control occurs during the one-year performance period, the performance goals under the STIP will be prorated based on the period of time during the one-year performance period through the date of the Change in Control, the executive will receive an award under the STIP that is prorated based on the period of employment during the one-year performance period through the date of the Change in Control and the portion of the award paid in restricted shares will immediately vest.
STIP Determinations by Compensation Committee
In the case of core FFO per share, core FAD per share and same-store NOI growth objectives, management proposed guidelines for measuring threshold, target and high performance levels based on Washington REIT's business projection and budget materials. These guidelines were then extensively reviewed by the Compensation Committee (together with the Board) and subsequently approved. The resulting approved guidelines for each of the financial goals across threshold, target, and high performance levels under the STIP are presented in the table below, along with the 2016 actual results recognized by the Compensation Committee:
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| | | | |
| | Threshold | Target | High | Final Results Recognized by the Committee |
| Core FFO per share | $1.70 | $1.73 | $1.77 | $1.76 |
| Core FAD per share | $1.38 | $1.41 | $1.45 | $1.41 |
| Same-store NOI growth | (0.50)% | 0.25% | 1.25% | 1.22% |
In making its assessment of the performance of financial goals, the Compensation Committee noted that actual performance with respect to core FFO per share was almost at the guideline high performance level, actual performance with respect to core FAD per share was at the guideline target performance level, and actual performance with respect to same-
store NOI growth was slightly below the guideline high performance level. In recognition of this overall performance, the Compensation Committee determined a combined score of 2.57 for the financial goals (75% weighting) portion of the STIP (on a scale of 1 to 3, with 3 being the highest level of achievement). In determining such combined score, the Compensation Committee made no subjective adjustments to its scoring of core FFO per share, core FAD per share and same-store NOI growth.
In the case of the individual objectives (25% weighting) portion of the STIP, the Compensation Committee reviewed and determined the performance of Mr. McDermott and Mr. McDermott reviewed and determined the performance of each of the other executives. With respect to the Compensation Committee’s determination of Mr. McDermott’s performance, the Compensation Committee took into account Mr. McDermott’s successful execution of the sale of the Maryland office portfolio, recycling part of the proceeds into the acquisition of Riverside Apartments (a 1,222 unit multifamily asset located in Alexandria, Virginia with potential onsite density to develop additional units), strengthening the balance sheet by raising equity and paying down $270 million of secured debt and continuing operational improvements within Washington REIT. With respect to Mr. McDermott’s determination of the performance of the other executives, Mr. McDermott took into account the performance in 2016 of each executive in leading his or her respective department and Washington REIT as a whole and in contributing to the financial and operational accomplishments of Washington REIT. The final determinations of the Compensation Committee and Mr. McDermott with respect to individual performance are reflected in the actual payout amounts for 2016 under the STIP as presented in the Summary Compensation Table and related footnotes within this Proxy Statement.
At the request of the Compensation Committee, an internal audit was performed to review management's calculations for the STIP to confirm that they comply with the STIP. This internal audit was then presented to the Compensation Committee for its review and acceptance.
Long-Term Incentive Plan (LTIP)
Plan Summary
Under the LTIP, executives are provided the opportunity to earn awards, payable 75% in unrestricted shares and 25% in restricted shares, based on achieving TSR performance objectives within a three-year performance period. The LTIP is a “rolling” plan, with a new three-year performance period (commencingcommencing on January 1 2011 and concluding on December 31, 2013).of each year. Each executive's total award opportunity under the LTIP, stated as a percentage of base salary, for the achievement of threshold, target and high performance requirements is set forth in the table below:
| | | | Threshold | Target | High | | For comparison purposes to long-term incentive plans of other companies, the percentages in the table at left reflect annualized percentages. In order to calculate awards at the conclusion of the three-year performance period, these percentages will be multiplied by three to account for each year in the performance period. | Threshold | Target | High |
| President and Chief Executive Officer | 80% | 150% | 270% | | 80% | 150% | 270% |
Executive Vice President | 50% | 95% | 170% | | 50% | 95% | 170% |
| Senior Vice President | 40% | 80% | 140% | | 40% | 80% | 140% |
| | | |
| (1) Effective January 1, 2017, the separate award opportunities for Mr. Riffee under the STIP and LTIP were eliminated so that all Executive Vice Presidents now have the same LTIP and STIP opportunities. | | (1) Effective January 1, 2017, the separate award opportunities for Mr. Riffee under the STIP and LTIP were eliminated so that all Executive Vice Presidents now have the same LTIP and STIP opportunities. |
For purposes of calculating award payouts at the conclusion of theeach three-year performance period, the level of salary wasis determined for each executive as of January 1, 2011. Notwithstanding the foregoing, Mr. McKenzie's salary, for purposesbeginning of calculating awards under the LTIP, was deemed to be $500,000 (reflecting the Compensation Committee's expectation,applicable performance period. Each TSR goal is measured over a
three-year performance period based on a share price determination made at the time the LTIP was adopted, to increase such salary over time to align more closely with chief executive salaries of companies in the 20-company peer group utilized by the Compensation Committee). Mr. McDermott began his service as Washington REIT's chief executive on October 1, 2013,beginning and did not participate in the LTIP during 2013.
LTIP performance was evaluated on bothend of the following performance goalsperiod and weightings:
TSR Goals
Absolute TSR (20%)
Relative TSR (20%)
dividends paid with respect to the common shares during the performance period. For purposes of calculating total shareholder return (TSR) metrics, the “starting price” equaledequals the average closing price for the 20-day20-trading day period ending December 1, 2010 andbeginning on the first trading day of the performance period. The “ending price” equaledequals the average closing price for the 20-day20-trading day period ending Decemberbeginning on the first trading day after the end of the performance period for performance periods that commenced before January 1, 2013. 2016, and the average closing price for the last 20 trading days of the performance period for performance periods commencing on or after January 1, 2016. Overall LTIP performance is evaluated on both of the following TSR performance goals and weightings:
Absolute TSR (50%)
For absolute TSR, threshold, target and high performance levels wereare 6%, 8% and 10%, respectively, total shareholder return over the performance period (calculated on a per annumcompounded, annualized basis). If absolute TSR fellfalls between 6% and 8% or between 8% and 10%, absolute TSR was towill be rounded to the closest TSR percentage in increments of 0.5% (e.g., 8.3% will be rounded to 8.5%) and the portion of the LTIP award that wasis dependent upon TSR was towill be determined by linear interpolation. If absolute TSR falls below the applicable threshold level, the portion of the award that is dependent on such goal will not be paid.
Relative TSR (50%)
For relative TSR, Washington REIT'sREIT’s TSR performance waswill be measured over the applicable performance period against a peer group of companies selected by the Compensation Committee at the beginning of the performance period. Prior to determining performance for an applicable period, the Compensation Committee will remove companies from the peer group for such period that cease to be peer group companies as a result of acquisitions, divestitures and other similar actions.
For the performance period that commenced on January 1, 2016, Washington REIT's relative TSR performance will be measured over the performance period against the 20-company13-company peer group set forth below.
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| American Assets Trust, Inc. | Equity One, Inc. | Piedmont Office Realty Trust, Inc. |
| Brandywine Realty Trust | First Potomac Realty Trust | Post Properties, Inc. |
| Columbia Property Trust | Highwoods Properties, Inc. | Saul Centers, Inc. |
| Corporate Office Properties Trust | Liberty Property Trust | Weingarten Realty Investors |
| Cousins Properties Incorporated | | |
For the performance periods that commenced before January 1, 2016, Washington REIT's relative TSR performance will be measured over the performance period against the 15-company peer group set forth below.
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| American Assets Trust, Inc. | Cousins Properties Incorporated | Mack-Cali Realty Corporation |
| Brandywine Realty Trust | Federal Realty Investment Trust | Post Properties, Inc. |
| Corporate Office Properties Trust | First Potomac Realty Trust | Regency Centers Corporation |
| Camden Property Trust | Home Properties, Inc. | Saul Centers, Inc. |
| Columbia Property Trust | Liberty Property Trust | Weingarten Realty Investors |
For performance periods that commenced on or after January 1, 2017, the peer group set forth above under “Role of Compensation Consultant and Peer Group Analysis” will be utilized by the Compensation Committee commencing in 2010. to measure Washington REIT’s relative TSR performance.
Threshold, target and high performance levels for relative TSR wereare the 33rd, the 51stand the 76th percentiles, respectively. If relative TSR fellfalls between the these percentiles, the actual relative TSR performance level wasis to be isolated to a particular interim band of performancedetermined by linear interpolation (with an associated payout level in between threshold and target performance levels, or target and high performance levels, as applicable). For both absolute andIf relative TSR goals, if actual TSR fellfalls below the applicable threshold level, the portion of the award that wasis dependent on such goal waswill not to be paid.
Strategic Plan Goals
Strategic plan fulfillment (60%)
At the completion of the three-year performance period, strategic plan fulfillment was evaluated by the Compensation Committee in its discretion (taking into account input from the BoardVesting and a written presentation on strategic plan fulfillment provided by the Chief Executive Officer). This evaluation considered among other factors:
Maintenance of an appropriate Core FAD/share growth rate
Maintenance of an appropriate debt/EBITDA ratio
Maintenance of an appropriate debt service coverage ratio
Maintenance of an appropriate Core FAD/dividend coverage ratio
Development of Washington REIT's management team
Formation of appropriate strategic partnerships
Creation of appropriate development transactional activity at Washington REIT
Overall improvement of the quality of the Washington REIT portfolio
in each case at levels and in manners that promote the fulfillment of Washington REIT's strategic plan. The Compensation Committee could provide informal guidelines from time to time with respect to the financial criteria noted above based on current market conditions, but advised Washington REIT management that its final determination of strategic plan fulfillment at the end of the three-year performance period would not be bound by any such guidelines. At the conclusion of the three-year performance period, the Compensation Committee evaluated performance on a scale of 1 (threshold), 2 (target) or 3 (high). If achievement fell below threshold level, there would be no award.
Payment
The LTIP awards wereare payable 50%75% in unrestricted shares and 50%25% in restricted shares, and wereare awarded out of and in accordance with Washington REIT's 20072016 Omnibus Long Term Incentive Plan. These unrestricted shares and restricted shares wereare to (i)(1) in the case of the restricted shares only, vest over a one-year period commencing on the January 1 following the end of the three-year performance period, (ii)(2) consist of an aggregate number of shares determined by dividing the dollar amount payable in unrestricted shares and restricted shares by the closing price per share on such January 1 and (iii)(3) be issued within 2 1/2 months of the end of the three-year performance period. Washington REIT must pay dividends currently on the restricted shares described above in this paragraph. Because restricted shares under the LTIP werewill only be issued after the three-year performance period has ended, no dividends werewill be paid on theserestricted shares until the actual performance washas been achieved.
If, during the one-year vesting period for the restricted shares described in the previous paragraph, the executive's employment wasis terminated by Washington REIT without Cause, or the executive resignedresigns for Good Reason, retired, diedRetires, dies or becamebecomes subject to a Disability while employed by Washington REIT, or a Change in Control occurred,occurs, the restricted shares awarded under the LTIP wouldwill immediately vest. “Cause,” “Good Reason,” Disability”“Retire,” “Disability” and “Change ofin Control” have the meanings set forth in the LTIP.
The executive wasis required to be employed on the last day of the performance period to receive aan LTIP award, subject to the following exceptions. If during the three-year performance period, the executive's employment wasis terminated by Washington REIT without Cause, or the executive resignedresigns with Good Reason, retired, diedRetires, dies or becamebecomes subject to a Disability while employed by Washington REIT, the executive wouldwill receive an award under the LTIP calculated based on (1) actual levels of performanceachievement as of the date of such event, with respect to the portions ofbut the award that are based on absolute TSR and relative TSR (i.e., 40% in the aggregate) and (2) target levels of performance with respect to the portion of the award based on strategic plan fulfillment (i.e., 60%), but in either case the award wouldwill be prorated based on the period of employment during the three-year performance period through the date of such event and the prorated portion of the award wouldwill immediately vest. If a Change in Control occurredoccurs while the executive was employed by Washington REIT during the three-year performance period, the executive wouldwill receive an award calculated in a similar manner as described in the immediately preceding sentence (provided, however, that the award would not be prorated based on the period of employment during the performance period through the date of such event) and the award would immediately vest. In all of the foregoing cases, payment of the award would be accelerated.
The grant date fair values for the LTIP awards for 20112016 are presented in the Summary Compensation Table and related footnotes within this Proxy Statement.
2013
Transition Awards
As a result of the change in 2014 from an “end-over-end” structure under the prior long-term incentive plan to the “rolling” structure under the LTIP, a transition program was initiated in 2014 in order to ensure that executives maintained an appropriate level of overall long-term compensation during the “phasing in” period for the new structure. The transition program provided for a one-time transition award opportunity (in the amounts described in the table under "Long-Term Incentive Plan (LTIP) - Plan Summary" above) commencing in 2014. This transition award opportunity was divided into two separate tranches with different performance periods and vesting schedules, as follows:
33.34% of the award opportunity had a TSR performance period of one year (commencing on January 1, 2014), vesting 50% at the one-year anniversary of the end of such performance period and 50% on the two-year anniversary thereof, and
66.66% of the award opportunity had a TSR performance period of two years (commencing on January 1, 2014), vesting 65% at the end of such two-year performance period and 35% on the one-year anniversary thereof.
The overall effect of the above transition program was to ensure consistent award opportunity during the LTIP “phase in” period. Each portion of the transition program noted above, consistent with the overall LTIP, was based 50% on absolute TSR and 50% on relative TSR for the relevant performance period. The transition program was designed based on advice from FPL Associates L.P., the independent consultant to the Compensation Committee.
LTIP Determinations by Compensation Committee
At the end of the 2011-2013 performance period, the Compensation Committee undertook the evaluation of performance required under the LTIP in order to make its final determinations. As noted above, the evaluation was divided into two parts - TSR goals and strategic plan goals.
TSR Goals
Absolute TSR (20%)
Relative TSR (20%)
With respect to TSR goals under the LTIP, the Compensation Committee reviewed the total shareholder return calculations against LTIP metrics.metrics with respect to the award opportunity, which had a three-year performance period ending on December 31, 2016. As noted above, for the absolute TSR goal, the threshold, target and high performance levels were 6%, 8% and 10% total shareholder return over the performance period (calculated on a per annum basis). As of the end of the performance period, Washington REIT’s absolute total shareholder return for the period was calculated to be -6.61%16.9%. As a result, consistent withpursuant to the terms of the LTIP, terms, the Compensation Committee made no awardawards with respect to the absolute TSR goal.goal calculated based on such achievement.
For the relative TSR goal for the three-year period ending on December 31, 2016, Washington REIT's TSR performance was measured over the performance period against the 20-companycompany peer group utilized by the Compensation Committee.Committee as of the beginning of such period, with peer companies that were no longer in existence being removed from the peer group when performance was measured. Threshold, target and high performance levels for relative TSR were the 33rd, the 51st and the 76th percentiles, respectively. As of the end of the performance period, Washington REIT’s relative TSR ranked betweenat the 5th and 1085th percentile. As a result, consistent withpursuant to the terms of the LTIP, terms, the Compensation Committee also made no awardawards with respect to the relative TSR goal.
Strategic Plan Goals
Strategic plan fulfillment (60%)
As noted above, the strategic plan fulfillment component of the LTIP was evaluated by the Compensation Committee in its discretion (taking into account input from the Board and a written presentation on strategic plan fulfillment provided by the Chief Executive Officer). Such evaluation took place at the end of the 2011 - 2013 performance period. The LTIP performance guidelines and related performance achievements are set forth in the table below.
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| | | |
| LTIP Factors | Guideline | Performance |
| l | Maintenance of an appropriate Core FAD/share growth rate | 3.5% annual growth | Negative growth |
| l | Maintenance of an appropriate debt/EBITDA ratio | 6.0x | 5.4x |
| l | Maintenance of an appropriate debt service coverage ratio | 3.0x | 2.5x |
| l | Maintenance of an appropriate Core FAD/dividend coverage ratio | 95% | 94.5% |
| | | Performance (no applicable Guideline) |
| l | Development of management team | Management team was restructured by operating divisions with stronger expertise at the top of each line of business. |
| l | Formation of appropriate strategic partnerships | Two new multifamily development projects, 650 N. Glebe and Braddock Gateway, initiated. However, Braddock Gateway project delayed due to market conditions and concerns about oversupply. |
| l | Creation of appropriate development transactional activity | Initiated a major $35 million redevelopment of Washington REIT’s largest asset, 7900 Westpark Drive. |
| l | Overall improvement of the quality of the real estate portfolio | Initiated successful sale and reinvestment of the industrial division. Initiated successful sale of medical office division, though reinvestment was incomplete as of end of performance period. The sale of these two divisions - upon the ultimate completion of the medical office reinvestment - will result in the repositioning of approximately one-third of the entire Washington REIT portfolio into higher-quality assets over the three-year performance period, which the Compensation Committee views as a substantial achievement. |
In making its assessment of the performance of strategic plan fulfillment, the Compensation Committee noted that various components of the strategic plan fulfillment goals were below the guidelines, but others reflected substantial achievements in the progress of Washington REIT toward its strategic plan objectives determined by the Board and management. The performance related to the maintenance of the Core FAD /dividend coverage ratio was only achieved through the dividend reduction in 2012. Nonetheless, the Compensation Committee viewed the transactional execution demonstrated by management in its two division sales - and, in particular, the industrial division sale which occurred in 2011 - to merit significant consideration and acknowledgment under the LTIP. In recognition of such performance, the combined score for the strategic plan fulfillment goal (60% weighting) portion of the LTIP was determined by the Compensation Committee at a level of 1.0 (on a scale of 1 (threshold), 2 (target) or 3 (high)).
Revised LTIP for Departing CEO
As noted below under “Departing CEO Compensation Arrangements,” the LTIP was amended, with respect to Mr. McKenzie only, to eliminate any possible proration for the year 2013 and to provide that the restricted share portion of the award was to be delivered in fully vested, unrestricted common shares.
Anticipated Future LTIP Modifications
The Compensation Committee anticipates that the LTIP will be amended effective in 2014 as follows -
The performance goals and weightings of the LTIP will be revised to be 100%calculated based on total shareholder return (TSR) as follows -such achievement.
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◦ | Absolute TSR will have a 50% weighting (rather than 20%, as the LTIP previously provided). |
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◦ | Relative TSR will have a 50% weighting (rather than 20%, as the LTIP previously provided). |
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◦ | As a result, there will no longer be a strategic plan fulfillment goal (which, under the previous LTIP, had been weighted at 60%). |
The LTIP will be restructured to be on an annual “rolling” basis (rather than a three-year “end-over-end” basis as the LTIP previously provided for during the performance period between 2011 and 2013).
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◦ | As a result, at the beginning of every year, a new performance period will initiate. At the end of each such performance period, actual TSR performance will be measured against the TSR performance goals to determine the LTIP award. |
As a result of the proposed change to a “rolling” structure, the Compensation Committee expects to initiate a transition program in order to ensure executives maintain an appropriate level of overall compensation during the phasing period for the new “rolling” structure. The details of this transition program have not been determined.
The Compensation Committee currently contemplates that the remaining components of the LTIP (for example, treatment upon termination and treatment upon Change of Control) will generally align with the previous LTIP. Please note that the foregoing description of anticipated changes to the LTIP reflects the Compensation Committee’s current expectations as of the date of this proxy statement. As a result, the actual final changes to the LTIP ultimately approved by the Compensation Committee could vary from the foregoing description.
Other Components of Executive Compensation ProgramComponents
New CEO Compensation ArrangementsEmployment Letter
On August 20, 2013, Washington REIT announced that it had selected Mr. McDermott to be its new President and Chief Executive Officer and had entered into an employment letter specifying the terms of his employment.
The employment letter specified that Mr. McDermott's annual base salary would initially be $500,000. After December 31, 2014, the Board agreed to review his base salary on an annual basis and may increase it in its discretion. In connection with entering into the employment letter, Mr. McDermott was awarded 21,000 restricted common shares on his start date, which was October 1, 2013. These shares willwere agreed to vest in equal installments of 7,000 shares each over a three year period while he remains employed, on the first, second and third anniversary dates of his start date. IfAs of October 1, 2016, all of these shares had vested. Had he isbeen terminated without Cause (as defined below), prior to the vesting of any of these shares, all of the then remaining unvested shares willwould have become vested on the termination date.
Under the employment letter, effective January 1, 2014, Mr. McDermott became eligible to participate in the STIP and LTIP at the Chief Executive Officer level, in accordance with the terms of the STIP and the LTIP, as they may be amended by the Board for all participating employees generally from time to time.
The employment letter providesprovided that Mr. McDermott is entitled to an automobile allowance of $14,000 per year and reimbursement of up to $15,000 for legal expenses for reviewing the employment letter. The employment letter also entitles Mr. McDermott to a 401(k) match and participation in our SERP. The employment letter requires Mr. McDermott to protect the confidentiality of Washington REIT confidential information and comply with Washington REIT’s stock ownership guidelines described below in this Proxy Statement. It further providesprovided that he willwould enter into the form of indemnification agreement entered into by and between Washington REIT and its other officers and Board members.
The employment letter provides that either Mr. McDermott or Washington REIT may terminate the employment relationship at any time for any lawful reason, with or without Cause, or Good Reason (as defined below) or notice. If Mr. McDermott's employment is terminated without Cause or he terminates for Good Reason, he would receive the following severance benefits, payable in installments according to Washington REIT’s payroll cycle and pro-rata portions of any STIP and LTIP values as determined by the applicable plans, provided that he signs Washington REIT’s standard separation agreement and general release. If termination without Cause or for Good Reason occurshad occurred between October 1, 2013 and September 30, 2015, he would receivehave received 24 months of base salary, and if termination without Cause or for Good Reason occurs on October 1, 2015 or thereafter, he would receive 12 months of base salary.
Under the employment letter, “Cause” means commission of a felony or crime of moral turpitude; conduct in the performance of duties which is illegal, dishonest, fraudulent or disloyal; breach of any fiduciary duty owed to Washington REIT; any action or inaction that constitutes a material breach of the employment letter which is not cured to Washington REIT 'sREIT's reasonable satisfaction within 30 days of receipt of written notice advising of such material breach; or gross neglect of duty which is not cured to Washington REIT 'sREIT's reasonable satisfaction within 30 days of receipt of written notice advising of such gross neglect, andneglect. “Good Reason” means a material diminution in base salary or a material diminution in overall base compensation earning potential that is not agreed to by the employee (other than due to failure to achieve performance-based measures), a material diminution in authority, duties or responsibilities, a material change in geographic location at which the employee is
employed, or any action or inaction by Washington REIT that constitutes a material breach of the employment letter, provided the employee gives written notice within 90 days after the condition providing the basis for such Good Reason first exists and if such Good Reason has not been corrected or cured within 30 days after Washington REIT has received written notice of the employee's intent to terminate his employment for Good Reason and specifying in detail the basis for such termination.
Departing CEO Compensation ArrangementsCFO Employment Letter and STIP/LTIP Matters
On January 28, 2013, Mr. McKenzie communicated to the Board his decision to retire from18, 2015, Washington REIT at the end of 2013. The Board then commenced a search for a successor chief executive, resulting in the election ofentered into an employment letter with Mr. McDermott as Washington REIT’s new chief executive.
In connection with his intention to retire, Mr. McKenzie and Washington REIT reached an agreement with respect toRiffee specifying the terms of his retirement. The agreement contemplated thatemployment. Pursuant to Mr. McKenzie would continue to serve as President and Chief Executive Officer of Washington REIT through December 31, 2013 or such shorter period as may be determined by the Board. If the Board determined a shorter period,Riffee’s employment letter, Mr. McKenzie was to remain an employee of Washington REIT through the remainder of 2013 and assist Washington REITRiffee participates in execution of strategic acquisition and disposition activities, transitioning the role of the chief executive to a new person designated by the Board and performing such other duties as reasonably requested by the Board. Mr. McKenzie was to continue at his current salary and with existing benefits through December 31, 2013, except as specifically noted below. Consistent with the foregoing, Mr. McKenzie resigned as Washington REIT’s chief executive effective as of September 30, 2013, but remained an employee of Washington REIT through December 31, 2013.
Washington REIT expected to execute significant acquisition and disposition activity during 2013 and desired to ensurecompensation program, including the involvement of Mr. McKenzie in such activities. As well, Washington REIT desired to have the full cooperation of Mr. McKenzie in connection with the expected transition to a new chief executive. In recognition of these matters and in consideration for the activities of Mr. McKenzie under these arrangements, Washington REIT's STIP and LTIP, were modified inat the manner described belowExecutive Vice President level, with respect to Mr. McKenzie only:
STIP: As noted above, the STIP provided for (a) a 60% weighting to three financial performance measures (Core funds from operations per share, Core funds available for distribution per share and same store net operating income), (b) a 20% weighting to acquisition and disposition activity and (c) a 20% weighting to individual performance measures. With respect to Mr. McKenzie only, the STIP was revised for the year 2013 as follows:
In lieu of the weightings above, the following weightings applied (a) a 40% weighting to three financial performance measures (Core FFOmodifications (1) Mr. Riffee’s base annual salary is $400,000 per share, Core FAD per share and same store NOI, evaluated in the same manner as the STIP) and the completion of a smooth transition to a new chief executive, (b) a 30% weighting to execution of the proposed sale of Washington REIT's medical office division and related reinvestment activities and (c) a 30% weighting to successful pricing of the proposed medical office division sale. Notwithstanding the foregoing, if the Board determined to abandon the proposed medical office division sale, then the Board was to make one of the following two determinations: (x) a determination that such abandonment was because management's execution of the transaction was not satisfactory to the Board, in which case the weightings described in the previous sentence would remain in place, or (y) a determination that such abandonment was due to other circumstances (such as market conditions or a change in strategic direction by the Board)annum (rather than $350,000), in which case Mr. McKenzie would have a 100% weighting to clause (a) of the preceding sentence and clauses (b) and (c) would not be applicable.
The quantitative scoring of Mr. McKenzie's performance was on a 1 (threshold), 2 (target) and 3 (high) scoring system as set forth(2) his participation in the STIP butand LTIP takes effect as of January 1, 2015, and (3) his STIP target is 175% (rather than 186%), split evenly between the cash component of 87.5% and the restricted share component of 87.5%. Mr. Riffee was basedalso awarded 5,287 restricted share units (RSUs) valued at $150,000, granted under Washington REIT’s 2007 Omnibus Long-term Incentive Plan, on his first date of employment. These RSUs vest in three equal installments over a three-year period, on the weightings described above. The aggregatefirst, second and third anniversaries of such date.
For 2015 and 2016, Mr. Riffee’s threshold, target and high award opportunities under the “performance-based” portionSTIP for each of the STIP (inclusive of both cash component and equity portions)the restricted share component were revised as follows: (a) threshold rating (i.e., 1.0 score) at 150% of base salary (increased fromdetermined by the STIP level of 101%), (b) target rating (i.e., 2.0) at 260% (increased from the STIP level of 211%), and (c) high rating (i.e., 3.0) at 375% (no increase from the STIP level). The proportions of cash and equity for the “performance based” portion remained as set forth in the STIP. The STIP award of Mr. McKenzie was notCompensation Committee to be prorated for any reason as42%, 87.5% (as noted above) and 140%, respectively. Mr. McKenzie was to remain an employee of Washington REIT forRiffee’s threshold, target and high award opportunities under the balance of 2013. The restricted share portion ofLTIP were determined by the STIP award wasCompensation Committee to be delivered in fully-vested, unrestricted common shares.
The actual payout amount44%, 95% and 149%, respectively. Effective January 1, 2017, the separate award opportunities for 2013Mr. Riffee under the STIP forand LTIP were eliminated so that all Executive Vice Presidents now have the same LTIP and STIP opportunities.
COO Employment Letter
On April 5, 2014, Washington REIT entered into an employment letter with Mr. McKenzie is presentedBakke specifying the terms of his employment. Pursuant to Mr. Bakke's employment letter, Mr. Bakke was awarded $100,000 in the Summary Compensation Table and related footnotes within this Proxy Statement.
LTIP:The LTIP provided forRSUs, granted under Washington REIT’s 2007 Omnibus Long-term Incentive Plan, on his first date of employment. These 4,151 RSUs vest in three equal installments over a three-year award to be issued with respect toperiod, on the 2011-2013 performance period at the conclusionfirst, second and third anniversaries of 2013. With respect to Mr. McKenzie only, the LTIP was revised for the year 2013 as follows:such date.
The LTIP award was not be prorated for any reason as Mr. McKenzie was to remain an employee of Washington REIT for the balance of 2013 (thereby completing the three-year performance period).
The restricted share portion of the LTIP award was to be delivered in fully vested, unrestricted common shares.
At December 31, 2013, all of Mr. McKenzie's unvested restricted shares and restricted share units under the STIP, Washington REIT's previous long term incentive plans and Washington REIT's deferred compensation plan for officers (including, in particular, Mr. McKenzie's account of restricted share units representing the 25% match to Mr. McKenzie's previous bonus deferrals) vested, and Mr. McKenzie's account under Washington REIT's SERP vested. All vesting and delivery of Washington REIT shares were subject to completion of any necessary time periods required for compliance with Section 409A of the Internal Revenue Code.
Mr. McKenzie executed a covenant in favor of Washington REIT providing that he would not compete with Washington REIT for a period of two years (with “competition” being defined as employment for, board service with or consulting for a public real estate investment trust with more than ten properties in the Washington, D.C. metropolitan area (with his board service to Chesapeake Lodging Trust being permitted in all events)) and would provide consulting services to Washington REIT for a two-year period commencing on January 1, 2014 and ending on December 31, 2015. In consideration of the foregoing, Washington REIT would pay Mr. McKenzie a monthly fee of $20,000 during years 2014 and 2015 and the costs of his COBRA coverage for each of years 2014 and 2015 based on his current health coverage from Washington REIT.
Washington REIT and Mr. McKenzie each provided a full release of claims to the other (other than claims arising from the breach of the foregoing arrangements).
Supplemental Executive Retirement Plan
Because the U.S. Internal Revenue Code of 1986 (the "Code") limits the benefits that would otherwise be provided by our qualified retirement programs, Washington REIT provides a supplemental executive retirement plan (“SERP”) for the benefit of the NEOs. This plan was established in November 2005 and is a defined contribution plan under which, upon a participant's termination of employment from Washington REIT for any reason other than death, discharge for cause, or total and permanent disability, the participant will be entitled to receive a benefit equal to the participant's accrued benefit times the participant's vested interest. A participant's benefit accrues over years of service. Washington REIT makes contributions to the plan on behalf of the participant ranging from 9.5% to 19% of base salary. The exact contribution percentage is based on the participant's current age and service such that, at age 65, the participant could be expected to have an accumulation (under assumptions made under the plan) that is approximately equal to the present
value of a life annuity sufficient to replace 40% of his or her final three year average salary. Vesting generally occurs based on a minimum of 10 years of service or upon death, total and permanent disability, involuntary discharge other than for cause, or retirement or voluntary termination if the participant does not engage in prohibited competitive activities during the two-year period after such retirement or voluntary termination.
Washington REIT accounts for this plan in accordance with Accounting Standards Codification ("ASC") 710, Compensation - General and ASC 320, Investments - Debt and Equity Securities, whereby the investments are reported at fair value, and unrealized holding gains and losses are included in earnings. For the years ended December 31, 2013, 20122016, 2015 and 2011,2014, Washington REIT recognized current service cost of $325,000, $342,000$225,000, $262,000 and $334,000,$306,000, respectively.
Severance Plan
On August 4, 2014, the Board and Compensation Committee adopted an Executive Officer Severance Pay Plan to provide specified benefits to executive officers in the event of their termination of employment from Washington REIT. Under the severance plan, in the event of a qualifying termination of employment of an executive officer, the executive officer will be entitled to receive severance pay in accordance with the following matrix:
|
| | |
| Weeks of Severance Pay |
| | Base Salary |
| Years of Service | $170K but less than $225K | $225K or more |
| Less than 1 | 12 | 14 |
| 1-4 | 16 | 18 |
| 5 | 18 | 20 |
| 6 | 20 | 22 |
| 7 | 22 | 24 |
| 8 | 24 | 26 |
| 9 | 26 | 28 |
| 10 | 28 | 30 |
| 11 | 30 | 32 |
| 12 | 32 | 34 |
| 13 | 34 | 36 |
| 14 | 36 | 38 |
| 15 | 38 | 40 |
| 16 | 40 | 42 |
| 17 | 42 | 44 |
| 18 | 44 | 46 |
| 19 | 46 | 48 |
| 20 | 48 | 50 |
| 21 | 50 | 52 |
| 22 or more | 52 | 52 |
In addition to the severance pay set forth above, under the severance plan each executive officer will also be entitled to receive a severance benefit comprised of an ongoing payment from Washington REIT equal to the employer portion of current medical, dental and vision elections for the period of severance (or, if less, the applicable COBRA payment). Any severance pay and severance benefits described above will be subject to applicable payroll and tax withholding.
Under the severance plan, for an executive officer to be eligible for severance pay and severance benefits, the termination of such executive officer must be by Washington REIT without “Cause” (as defined in the severance plan) or by resignation of the executive officer for “Good Reason” (as defined in the severance plan). Washington REIT also has the discretion under the severance plan to pay severance pay and benefits in other involuntary termination scenarios and to pay supplemental severance pay. In all cases, the executive officer must execute and not revoke Washington REIT’s standard form of separation agreement applicable to executive officers in order to receive severance pay and benefits. Washington REIT will be required to make the severance payment in a lump-sum on or before March 15 of the calendar year following the calendar year in which the executive officer is terminated, but such portion of the payments (if any) that would constitute deferred compensation under Section 409A of the Code will not be paid until at least six months after the executive officer’s termination if the executive officer is also a "specified employee" under the provisions of the Code. The severance pay and severance benefits under the severance plan are in addition to, and not in lieu of, any applicable equity vesting, acceleration of payment or other benefits that may exist under the LTIP, the STIP, the SERP and other compensation plans. If the executive officer is entitled to severance payments under a change in control agreement with Washington REIT, then the executive officer will not also receive payment under the severance plan. In addition, for the President and Chief Executive Officer, he will be entitled to the severance payments under the severance plan or his employment letter with Washington REIT, whichever is greater. The severance plan defines participating executive officers to be officers at the level of President and Chief Executive Officer, Executive Vice President or Senior Vice President.
Deferred Compensation Plan
Beginning in 2007, Washington REIT adopted a plan that allows officers to voluntarily defer salary and STIP awards. The plan allows any officer to defer a percentage or dollar amount of his or her salary and/or his or her STIP awards. The amounts deferred are not included in the officer’s current taxable income and, therefore, are not currently deductible by us. Salary deferrals are credited during the year with earnings based on the weighted average interest rate on Washington REIT's fixed rate bonds as of December 31 of each calendar year. STIP awards are deferred as restricted share units, with a 25% match of restricted share units on the deferred amount. The 25% match cliff vests after three years. The restricted share units are credited with an amount equal to the corresponding dividend paid on Washington REIT's common shares. Participants may elect to defer receipt of payments to a specified distribution date that is at least three years from the lastfirst day of the year into which the deferral amounts were earnedsalary deferred related or, if applicable, at least five years from any previously designated distribution date. If a participant has not elected to further defer a distribution beyond the original designated distribution date, then payment will commence upon the earliest of (i)(1) the original specified distribution date, (ii)(2) the date the participant terminates employment from Washington REIT, (iii)(3) the participant's death, (iv)(4) the date the participant sustains a total and permanent disability, or (v)(5) a change in control. Amounts deferred into restricted share units will be paid in the form of shares. The plan is unfunded and payments are to be made from general assets of Washington REIT.
Perquisites
NEOs participate in other employee benefit plans generally available to all employees on the same terms. In addition, the NEOs are provided with supplemental life insurance and granted an automobile allowance. The Compensation Committee believes that these benefits are reasonable and consistent with its overall compensation program to better enable Washington REIT to attract and retain key employees. For information on specific benefits and perquisites, see the footnotes to the Summary Compensation Table.
Change in Control Termination Agreements
The change in control agreements with the NEOs discussed below provide for continuation of payments and benefits by Washington REIT in the event of termination due to a “change in control” (as defined in these agreements). The basic rationale
for these change in control protections is to diminish the potential distractions due to personal uncertainties and risks that inevitably arise when a change in control is threatened or pending.
The termination benefits payable in connection with a change in control require a “double trigger,” which means that (i)(1) there is a “change in control” (as that term is defined in the agreement) and (ii)(2) after the change in control, the covered NEO's employment is “involuntarily terminated” by Washington REIT or its successor but not for “cause” (as both terms are defined in the agreement) or, but including a termination by the NEO for “good reason” (as defined in the agreement)executive because his duties, responsibilities or compensation are materially diminished, within 24 to 36 months of the change in control (as such period is specified in the covered NEO's agreement). In addition, if one of the foregoing terminations of employment occurs in the 90 day period before the change in control, the termination will be presumed to be due to the change in control unless Washington REIT can demonstrate to the contrary. A double trigger was selected to enhance the likelihood that an executive would remain with Washington REIT after a change in control because the executive would not receive the continuation of payments and benefits if he or she voluntarily resigned after the change in control. Thus, the executive is protected from actual or constructive dismissal after a change in control and any new controlling party or group is better able to retain the services of a key executive.
The formula to calculate the change in control benefit is similar for each of the NEOs, with the variable being whether the benefit will be paid for 24 or 36 months. The formula is as follows:
A. A continuation of base salary at the rate in effect as of the termination date for a period based on the levels below:
|
| |
| Executive Position | Period |
| Chief Executive Officer | 36 months |
| Executive Vice Presidents | 24 months |
| Senior Vice Presidents | 24 months |
B. Payment of an annual bonus for each calendar year or partial calendar in which the NEO receives salary continuation as described above, in an amount equal to the average annual short-term incentive plan compensation received during the three years prior to the involuntary termination.
C. Payment of the full cost to continue coverage under Washington REIT's group health insurance plan pursuant to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for the period of time the NEO receives salary continuation up to a maximum of 18 months or until the NEO obtains other comparable coverage, whichever is sooner.
D. Immediate vesting in all unvested common share grants, restricted share units, and performance share units and dividend equivalent units granted to the NEO under Washington REIT's 2007 Omnibus Long TermLong-Term Incentive Plan or Washington REIT’s 2016 Omnibus Incentive Plan and immediate vesting in the deferred compensation plans.
Each of our change of control agreements then in effect was amended effective November 5, 2012 to eliminate the executive's right to receive a tax “gross-up” payment based on Section 4999 of the Internal Revenue Code. As a result, we no longer have the obligation to provideno tax “gross-up” paymentspayment requirements to our executives with respect to amounts owed under Section 4999 of the Internal Revenue Code.
In addition to our change in control agreements, our STIP and LTIP each provide for particular awards to be made in the event of a change in control that occurs during the performance period under each such plan. These awards are described in further detail under the headings “Short-termShort-Term Incentive Plan (STIP)” and “Long-termLong-Term Incentive Plan (LTIP)” above.
For detailedfurther information on theseChange of Control payments, see “Potential Payments upon Change in Control” on page 36.59.
Additional Executive Compensation MattersSay On Pay Results and ConsiderationSeparation Agreements
Our 2013 advisory, non-binding say-on-pay proposal received the following votes:
In July 2016, Washington REIT announced the resignation of Thomas C. Morey. In connection with his departure, Washington REIT entered into separation agreement with Mr. Morey. Pursuant to the separation agreement, Mr. Morey received all of his earned but unpaid salary and vacation, as of his resignation date. In addition, because he complied with and fulfilled his obligations under the separation agreement, Mr. Morey received an additional $200,000, less required withholdings and deductions, on February 28, 2017. Mr. Morey’s separation agreement also contains releases by both Mr. Morey and Washington REIT, confidentiality and non-solicitation obligations and other customary provisions. |
| | | | | | |
| For | | Against | | Abstain | | Broker Non-Votes |
| 42,267,761 | | 1,189,233 | | 399,520 | | 16,007,132 |
Perquisites
NEOs participate in other employee benefit plans generally available to all employees on the same terms. In addition, the NEOs are provided with supplemental life insurance and in some cases granted an automobile allowance and/or provided an executive physical. The Compensation Committee consideredbelieves that these benefits are reasonable and consistent with its overall compensation program to better enable Washington REIT to attract and retain key employees. For more information on specific benefits and perquisites, see the footnotes to the Summary Compensation Table.
Policies Applicable to Executives
Clawback Policy
Washington REIT has adopted a clawback policy with respect to the return (clawback) from executive officers of incentive compensation. The policy states that, with respect to any incentive awards granted after March 20, 2013, the Board will have the right to seek to recoup all or any portion of the value of such awards in the event of a material restatement of Washington REIT's financial statements covering any of the three fiscal years preceding the payment of an award which results from fraud or misconduct committed by a recipient of such award. The Board may seek recoupment from any award recipient whose fraud or misconduct gave rise or contributed to the restatement. The value with respect to which recoupment may be sought will be determined by the Board. Further, it is the intention of the Board that, to the extent that the final clawback provisions adopted by the SEC and the NYSE differ from the foregoing resultspolicy, the foregoing policy will be amended to conform to the final provisions.
Hedging Prohibition Policy
To prevent speculation or hedging in connectionour shares by trustees, officers or employees, Washington REIT has adopted a policy prohibiting hedging. The policy states that Washington REIT considers it inappropriate for any trustee, officer or employee to hedge or monetize transactions to lock in the value of his or her Washington REIT share holdings. Such transactions, while
allowing the holder to own Washington REIT shares without the full risks and rewards of ownership, potentially separate the holder's interest from those of the other Washington REIT shareholders. Therefore, no Washington REIT trustee, officer or employee is permitted to purchase or sell derivative securities relating to Washington REIT shares, such as exchange-traded options to purchase or sell Washington REIT shares, or other financial instruments that are designed to hedge or offset any decrease in the market value of Washington REIT shares (including but not limited to prepaid variable forward contracts, equity swaps, collars and exchange funds).
Margin Loan Prohibition Policy
Washington REIT maintains a policy that no executive officer may take a margin loan where Washington REIT's shares are used, directly or indirectly, as collateral for the loan. Such persons are also prohibited from otherwise pledging Washington REIT securities as collateral for a loan agreement.
Executive Ownership Policy
The Compensation Committee believes that common share ownership allows our executives to better understand the viewpoint of shareholders and incentivizes them to enhance shareholder value by aligning their interests with the discharge of its responsibilities. Because the 2013 advisory, non-binding say-on-pay proposal received the approval of more than 97% of our shareholders who cast a vote,shareholders’ interests. To that end, in 2010, the Compensation Committee did not implement significant changesand Board adopted a formal stock ownership policy. The stock ownership policy requires each executive to ourretain an aggregate number of common shares having a market value at least equal to a specified multiple of such executive's annual base salary (determined based on 2010 base salary for any executive compensation programin office on the February 18, 2010 plan commencement date, or as a result of the shareholder advisory vote.date of hire for executives hired after such date). The applicable multiples of base salary required to be held are as follows:
|
| | | | |
| Title | | Multiple of Base Salary | |
| Chief Executive Officer and President | | | 3.0x | |
| Executive Vice Presidents | | | 2.0x | |
| Senior Vice Presidents | | | 1.0x | |
The policy requires that each executive attain the level set forth above within five years after his or her date of employment with Washington REIT. The aggregate number of common shares required to be held by each executive in office on Pay
On July 28, 2011,February 18, 2010 (the plan commencement date), was determined based on the Board determined that, consistent with the Board's recommendationmarket value of common shares for the 2011 annual meeting60 trading days prior to such date. For executives hired or promoted thereafter, the aggregate number of common shares or additional common shares required to be held by such executive is determined based on the market value of common shares on the 60 trading days prior to the date of such hiring or promotion, as applicable. Once established, an executive's common share ownership goal will not change because of changes in his or her base salary or fluctuations in Washington REIT's common share price. The policy also contains additional terms and conditions, including an interim ownership requirement for executives during the votetransition period to the full requirements.
The multiples of base salary reflected in the stock ownership guidelines above were determined by the Compensation Committee based on the recommendation of the shareholders, Washington REIT will hold future “say on pay” votes on an annual basis untilHay Group (the Compensation Committee's consultant at the next required vote regardingtime the frequencystock ownership guidelines were adopted), which had presented the Compensation Committee with a survey of “say on pay” votes is conducted.stock ownership requirements in the peer group utilized by the Compensation Committee for 2010 compensation and a survey of stock ownership practices of large public companies.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code (“Code”) generally disallows a tax deduction to public companies for individual compensation in excess of $1 million paid to a public company's NEO.its chief executive officer and each of its three other most highly compensated executive officers, other than its chief financial officer, in any taxable year. Certain compensation is specifically exempt from the deduction limit to the extent that it does not exceed $1 million during any fiscal year or is “performance based” as defined in Section 162(m). TheFor the calendar year following shareholder approval of our 2016 Omnibus Incentive Plan, the benefits under our short-term incentive and long-term incentive plans do notare able to qualify as “performance based” under Section 162(m). To the extent that compensation paid to Washington REIT’s executive officers is subject to and does not qualify for deduction under Section 162(m), Washington REIT is prepared to exceed the limit on deductibility under Section 162(m) to the extent necessary to establish compensation programs that we believe provide appropriate incentives and reward our executives relative to their performance. Washington REIT believes that it must maintain the flexibility to take actions whichthat may not qualify for tax deductibility under Section 162(m) if it deemsis deemed to be in the best interests of Washington REIT but which may not qualify for tax deductibility under Section 162(m).REIT.
Share Ownership Policy
The Compensation Committee believes that common share ownership allows executives to better understand the viewpoint of shareholders and incentivizes them to enhance shareholder value. As a result, on February 18, 2010, the Compensation Committee and Board adopted stock ownership guidelines for executives which were incorporated by the Board into our Corporate Governance Guidelines. On October 27, 2010, the Compensation Committee and Board adopted a formal stock ownership policy, which formalized and effectuated the stock ownership guidelines previously adopted on February 18, 2010.
The stock ownership policy requires each executive to retain an aggregate number of common shares having a market value at least equal to a specified multiple of such executive's 2010 annual base salary. The applicable multiples of base salary required to be held are as follows:
Chief Executive Officer: 3 times
Executive Vice President: 2 times
Senior Vice President/Managing Director: 1 time
The policy requires that each executive attain the level set forth above within five years after his or her date of employment with Washington REIT or February 18, 2015 (which is five years after the commencement of the stock ownership guidelines on February 18, 2010), whichever is later. The aggregate number of common shares required to be held by each executive in office on February 18, 2010, was determined based on the market value of common shares for the 60 trading days prior to such date. For executives hired or promoted in the future, the aggregate number of common shares or additional common shares required to be held by such executive will be determined based on the market value of common shares on the 60 trading days prior to the date of such hiring or promotion, as applicable. Once established, an executive's common share ownership goal will not change because of changes in his or her base salary or fluctuations in Washington REIT's common share price.
The policy also contains additional terms and conditions, including an interim ownership requirement for executives during the transition period to the full requirements. Under the interim ownership requirement, executives subject to the policy as of February 18, 2010 were required to achieve 50% of their share ownership goal by August 18, 2012.
The multiples of base salary reflected in the stock ownership guidelines above were determined by the Compensation Committee based on the recommendation of the Hay Group (the Compensation Committee's consultant at the time the stock ownership guidelines were adopted), which had presented the Compensation Committee with a survey of stock ownership requirements in the peer group utilized by the Compensation Committee for 2010 compensation and a survey of stock ownership practices of large public companies.
Clawback Policy
Washington REIT has adopted a clawback policy with respect to the return (clawback) from executive officers of incentive compensation. The policy states that, with respect to any incentive awards granted after March 20, 2013, the Board will have the right to seek to recoup all or any portion of the value of such awards in the event of a material restatement of Washington REIT's financial statements covering any of the three fiscal years preceding the payment of an award which results from fraud or misconduct committed by a recipient of such award. The Board may seek recoupment from any award recipient whose fraud or misconduct gave rise or contributed to the restatement. The value with respect to which recoupment may be sought will be determined by the Board. Further, it is the intention of the Board that, to the extent that the final clawback provisions adopted by the SEC and the New York Stock Exchange differ from the foregoing policy, the foregoing policy will be amended to conform to the final provisions.
Hedging Prohibition Policy
To prevent speculation or hedging by trustees, officers or employees in our shares, Washington REIT has adopted a policy prohibiting hedging. The policy states that Washington REIT considers it inappropriate for any trustee, officer or employee to hedge or monetize transactions to lock in the value of his or her Washington REIT share holdings. Such transactions, while allowing the holder to own Washington REIT shares without the full risks and rewards of ownership, potentially separate the holder's interest from those of the other Washington REIT shareholders. Therefore, no Washington REIT trustee, officer or employee is permitted to purchase or sell derivative securities relating to Washington REIT shares, such as exchange traded options to purchase or sell Washington REIT shares, or other financial instruments that are designed to hedge or offset any decrease in the market value of Washington REIT shares (including but not limited to prepaid variable forward contracts, equity swaps, collars and exchange funds).
Compensation Committee Matters
The Compensation Committee is responsible for makingapproving executive compensation decisions and recommendingmaking recommendations to the Board an overall executive compensation policy.Board. The Compensation Committee is also responsible for approving and making decisions and recommendations to the Board with respect to other employee compensation and benefit plan matters. In addition, the Compensation Committee is required to produce an annual report on executive compensation for inclusion in our proxy statement, in accordance with applicable SEC rules and regulations.
The Compensation Committee is comprised of at least three and no more than six independent members of the Board (as the term “independent” is defined in the applicable listing standards of the New York Stock Exchange). The current Compensation Committee charter was adopted on February 20, 2003 and was revised on September 13, 2005, March 23, 2007, December 12, 2008 and April 23, 2013.October 21, 2015. A copy of the Compensation Committee Charter can be found on our website at www.writ.com.www.washreit.com, under the heading “Investor” and subheading “Corporate Overview - Corporate Governance.” Among other matters, the Compensation Committee charter provides the Compensation Committee with the independent authority to retain and terminate any compensation consulting firms or other advisors to assist in the evaluation of trustee, Chief Executive Officer and other executive compensation.
The Compensation Committee meets at least once annually or more frequently as circumstances require. Each meeting allows time for an executive session in which the Compensation Committee and outside advisors, if requested, have an opportunity to discuss all executive compensation issues without members of management being present. During 2013, the Compensation Committee held 10 meetings.
Compensation Consultant Matters
Pursuant to the Compensation Committee charter, the decision to retain an independent consultant (as well as other advisors) is at the sole discretion of the Compensation Committee, and any such independent consultant works at the direction of the Compensation Committee.
In May 2010, the Compensation Committee elected to engage a new independent consultant. After an extensive interview process, the Compensation Committee selected and engaged FPL Associates L.P. as its independent consultant. The Compensation Committee worked extensively with FPL Associates L.P. in the second half of 2010 to design the STIP and the LTIP, which commenced operation effective January 1, 2011.
As noted above under “Anticipated Future STIP Modifications” and “Anticipated Future LTIP Modifications,” we are in the process of further revising the STIP and LTIP. The Compensation Committee has worked with FPL Associates L.P. in connection with these potential amendments to the STIP and LTIP.
In establishing 20132016 executive compensation levels, the Compensation Committee Chairman worked with FPL Associates L.P. to determine the scope of work to be performed to assist the Compensation Committee in its decision making processes.
In conducting its work on 20132016 executive compensation levels for the Compensation Committee, FPL Associates L.P. also interacted with other members of the Compensation Committee, the Chief Executive Officer, the Executive Vice President - Accounting, Administration and Corporate Secretary, the Executive Vice President and Chief Financial Officer and the Senior Vice President and General Counsel.
As noted above, FPL Associates L.P. provided the Compensation Committee with competitive pay analysis regarding both the broader market (including the NAREIT survey) and a group of 20 public REITs. FPL Associates L.P. attended Compensation Committee meetings and, upon request by the Compensation Committee, executive sessions to provide advice and counsel regarding decisions facing the Compensation Committee.
During 2013, the independent Special Committee of the Board formed to conduct the search for a new Chief Executive Officer engaged Ferguson Partners, L.P. to assist the Special Committee. FPL Associates L.P. and Ferguson Partners, L.P. are affiliates. FPL Associates L.P. was paid $15,100 for its services to the Compensation Committee in 2013, and Ferguson Partners, L.P. was paid $100,000 upon engagement, $100,000 30 days after engagement, $100,000 60 days after engagement and $150,000 when Washington REIT hired its new Chief Executive Officer, for its services to the Special Committee. The Compensation Committee considered the potential for conflicts associatedhas reviewed its relationship with the engagement of FPL Associates L.P. and Ferguson Partners, L.P., including the services to be provided by Ferguson Partners, L.P., the amount of fees to be received by FPL Associates L.P. and Ferguson Partners, L.P. as a percentage of the total revenue of FPL Associates L.P. and the policies and procedures adopted by FPL Associates L.P. designed to prevent conflicts of interest. Based upon the fact that both FPL Associates L.P. and Ferguson Partners, L.P. were selected by independent committees and not recommended or selected by management, the advice from the two consultants would address related matters, the fee payable to Ferguson Partners, L.P. was structured to minimize or eliminate conflicting interests and FPL Associates L.P. had adopted policies intended to identify potential conflicts and procedures intended to prevent improper influence, the Compensation Committee concluded that the engagement of Ferguson Partners, L.P. did not constitute a conflict of interest likely to compromise the independence of the advice provided by FPL Associates L.P. to ensure that FPL Associates L.P. is independent from management. This review process includes a review of the services FPL Associates L.P. provides, the quality of those services, and fees associated with the services during the fiscal year, as well as consideration of the factors impacting independence that are set forth in NYSE rules.
Compensation Committee,Policies and the Compensation Committee approved the engagement of Ferguson Partners, L.P. to assist the Special Committee.
Role of Executives in Establishing CompensationRisk Management
The Compensation Committee believes management input is importantmembers evaluate the principal elements of executive and non-executive compensation to determine whether they encourage excessive risk-taking. While the overall effectivenessCompensation Committee members focus primarily on the compensation of the executive officers because risk-related decisions depend predominantly on their judgment, they also consider other Washington REIT's executive compensation program.REIT employees operating in decision-making capacities. The Compensation Committee believes that evenbecause of the best advicefollowing there is a low likelihood that our compensation policies and practices would encourage excessive risk-taking:
RISK MITIGATION FACTORS
A significant percentage of an independent consultant must be combinedcompensation is equity-based, long-term compensation under the STIP and LTIP, both of which provide for equity-based compensation. Awards made under the STIP are payable 50% in restricted shares that vest over a three-year period. Awards made under the LTIP are made after a three-year performance period. At the conclusion of such three-year performance period, the LTIP awards are payable 75% in unrestricted shares and 25% in restricted shares that vest over a one-year period commencing at the conclusion of the three-year performance period. This significant use of restricted shares encourages our executives to focus on sustaining our long-term performance because unvested awards could significantly decrease in value if our business were not managed with management inputlong-term interests in mind.
The STIP and LTIP utilize a balanced variety of performance goals. The STIP utilizes aggregate financial performance (comprised of core FFO per share, core FAD per share and same-store NOI growth) at a 75% weighting and the business judgmentexecutive's individual performance compared to individual goals at a 25% weighting. The LTIP utilizes absolute TSR (50% weighting) and relative TSR (50% weighting). As a result, the benefit plan design contains several performance goals intentionally selected by the Compensation Committee with the goal of aligning executive compensation with long-term creation of shareholder value.
The STIP and LTIP contain reasonable award opportunities that are capped at appropriate maximum levels. For each executive, the target incentive award is based on a percentage of base salary ranging from 130% to 226% for the STIP and 80% to 150% for the LTIP. For the STIP, the actual award to be paid to the executive could range from a 51% to 54% of the target incentive award for threshold performance and 172% to 177% of the target incentive award for high performance. For the LTIP, the actual award to be paid to the executive could range from a 50% to 53% of the target incentive award for threshold performance and 175% to 180% of the target incentive award for high performance. The preceding values take into consideration the elimination of the separate award opportunities under the STIP and LTIP for Mr. Riffee, as described above. Mr. Riffee’s award opportunities are now governed by the original terms of the plans.
The Compensation Committee retains discretion under the STIP with respect to total awards. Under the STIP, aggregate financial performance and the participant's performance compared to individual objectives represent all of the performance goals under the STIP (i.e., 100% of the performance goals are determined in the Compensation Committee's (or Chief Executive Officer's) discretion), and each is subject to the discretion of the Compensation Committee membersCommittee.
Washington REIT adopted a stock ownership policy by which each executive is required to arrive atmaintain a proper alignmentmultiple of compensation philosophy, programs and practices.his or her base salary in common shares. The multiples are 3x (for the Chief Executive Officer, theOfficer), 2x (for Executive Vice President - Accounting, AdministrationPresidents) and Corporate Secretary, the Executive Vice President and Chief Financial Officer and the1x (for Senior Vice PresidentPresidents). This ownership policy requires each executive to maintain a meaningful equity interest that could significantly decrease in value if our business were not managed with long-term interests in mind.
Washington REIT adopted a “clawback” policy by which the Board has the right to seek or recoup all or any portion of the value of incentive awards. The Board’s clawback right will apply in the event of a material restatement of Washington REIT's financial statements covering any of the three fiscal years preceding the payment of an award which results from fraud or misconduct committed by a recipient of such award.
We believe this combination of factors encourages prudent management of Washington REIT. In particular, by structuring our compensation programs to ensure that a considerable amount of the wealth of our executives is tied to our long-term health, we believe we discourage executives from taking risks that are not in our long-term interests.
Compensation Committee Interlocks and General Counsel areInsider Participation
During the management members who interact most closelylast completed fiscal year, the Compensation Committee was comprised of Chairman Civera, Messrs. Butcher and Winns, and Ms. White. The Compensation Committee was responsible for making decisions and recommendations to the Board with respect to compensation matters. Ms. White resigned from the board effective August 19, 2016, and, therefore, no
longer serves as a member of the Compensation Committee. These individuals work withThere are no Compensation Committee interlocks and no Washington REIT employee serves on the Compensation Committee to provide their perspective on compensation strategies and how to align them with our business strategy. They also provide feedback on how well our compensation programs appear to be working.Committee.
Compensation Committee Report
The Compensation Committee of Washington REIT has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to Washington REITthe Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
SUBMITTED BY THE COMPENSATION COMMITTEECOMMITTEE:
Edward S. Civera, Compensation Committee Chairman
William G. Byrnes,Benjamin S. Butcher, Compensation Committee Member
Thomas Edgie Russell, III,Vice Adm. Anthony L. Winns (RET.), Compensation Committee Member
Wendelin A. White, Compensation Committee Member
COMPENSATION TABLES
30
Compensation Tables
Summary Compensation Table
The Summary Compensation Table has been prepared to comply with the disclosure requirements of the SEC. The Summary Compensation Table sets forth the compensation paid for 2016, 2015 and 2014 to each of our "NEOs" (who are the executive officers set forth in the Summary Compensation Table) and includes as compensation for the indicated year all incentive compensation awards granted in that year even though(although the awards were made with respect to performance in other years. For example, 2011 compensation indicated in the Summary Compensation Table includes a three-year performance-based LTIP award granted in 2011 even though the payout amount was not determined until the end of the performance period (i.e., December 31, 2013)years). For a more complete explanation, please refer to footnote (1) below. For an alternative view that we believe more accurately reflects incentive compensation received for a given year, we urge you to refer to the Total Direct Compensation Table on page 33.55.
|
| | | | | | | | | | | | | | | | | | | | |
| (a) | (b) | (c) | (e) | (g) | (h) | (i) | (j) | |
| Name and Principal Position | Year | Salary ($) | Stock Awards (1) (2) ($) | Non-Equity Incentive Plan Compensation (3) ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation (4) ($) | Total ($) | |
| Paul T. McDermott | 2013 | $ | 126,923 |
| $ | 537,810 |
| $ | — |
| $ | — |
| $ | 30,541 |
| $ | 695,274 |
| |
| President and Chief Executive | | | | | | | | |
| Officer | | | | | | | | |
| | | | | | | | | |
| George F. McKenzie | 2013 | 538,935 |
| 391,308 |
| 290,000 |
| 193 |
| 123,178 |
| 1,343,614 |
| |
| Retired President and Chief | 2012 | 500,000 |
| 74,994 |
| 361,500 |
| — |
| 123,028 |
| 1,059,522 |
| |
| Executive Officer | 2011 | 460,000 |
| 2,817,824 |
| 533,048 |
| — |
| 115,270 |
| 3,926,142 |
| (1) |
| | | |
| |
| |
| | |
| |
| |
| William T. Camp | 2013 | 350,000 |
| 220,654 |
| 199,500 |
| — |
| 70,619 |
| 840,773 |
| |
| Executive Vice President, Chief | 2012 | 350,000 |
| 52,512 |
| 215,250 |
| — |
| 70,469 |
| 688,231 |
| |
| Financial Officer | 2011 | 340,000 |
| 1,302,045 |
| 323,612 |
| — |
| 68,771 |
| 2,034,428 |
| (1) |
| | | |
| |
| |
| | |
| |
| |
| Laura M. Franklin | 2013 | 350,000 |
| 220,262 |
| 199,500 |
| — |
| 60,703 |
| 830,465 |
| |
| Executive Vice President, | 2012 | 350,000 |
| 52,512 |
| 215,250 |
| — |
| 60,553 |
| 678,315 |
| |
| Accounting, Administration and | 2011 | 340,000 |
| 1,309,101 |
| 328,168 |
| — |
| 59,095 |
| 2,036,364 |
| (1) |
| Corporate Secretary | | | | | | | | |
| | | | | | | | | |
| James B. Cederdahl (5) | 2013 | 288,000 |
| 132,476 |
| 118,000 |
| — |
| 55,036 |
| 593,512 |
| |
| Senior Vice President, | 2012 | 275,083 |
| 38,564 |
| 132,480 |
| — |
| 54,886 |
| 501,013 |
| |
| Property Operations | | | | | | | | |
| | | | | | | | | |
| Thomas L. Regnell | 2013 | 288,000 |
| 126,723 |
| 118,000 |
| — |
| 61,426 |
| 594,149 |
| |
| Senior Vice President and | 2012 | 288,000 |
| 43,213 |
| 126,720 |
| — |
| 61,276 |
| 519,209 |
| |
| Managing Director, Office Division | 2011 | 280,000 |
| 861,720 |
| 188,720 |
| — |
| 59,842 |
| 1,390,282 |
| (1) |
|
| | | | | | | | | | | | | | | | |
| (a) | (b) | (c) | (e) | (g) | (i) | (j) |
| Name and Principal Position | Year | Salary ($) | Stock Awards (4) (5) ($) | Non-Equity Incentive Plan Compensation (6) ($) | All Other Compensation (7) ($) | Total ($) |
| Paul T. McDermott | 2016 | $ | 575,000 |
| $ | 1,093,866 |
| $ | 969,191 |
| $ | 127,591 |
| $ | 2,765,648 |
|
| President and Chief | 2015 | 500,000 |
| 1,216,978 |
| 652,125 |
| 113,648 |
| 2,482,751 |
|
| Executive Officer | 2014 | 500,000 |
| 1,093,150 |
| 706,250 |
| 113,166 |
| 2,412,566 |
|
| | | | | | | |
| Thomas Q. Bakke (1) | 2016 | 387,500 |
| 564,926 |
| 536,271 |
| 72,364 |
| 1,561,061 |
|
| Executive Vice President and | 2015 | 350,000 |
| 604,924 |
| 375,331 |
| 68,607 |
| 1,398,862 |
|
| Chief Operating Officer | 2014 | 244,102 |
| 582,088 |
| 378,000 |
| 37,059 |
| 1,241,249 |
|
| | | | | | | |
| Stephen E. Riffee (2) | 2016 | 412,500 |
| 589,536 |
| 507,659 |
| 83,297 |
| 1,592,992 |
|
| Executive Vice President and | 2015 | 347,179 |
| 364,392 |
| 394,625 |
| 68,981 |
| 1,175,177 |
|
| Chief Financial Officer | | | | | | |
| | | | | | | |
| Thomas C. Morey (3) | 2016 | 191,093 |
| 204,720 |
| — |
| 222,384 |
| 618,197 |
|
| Senior Vice President, General | 2015 | 288,000 |
| 372,877 |
| 217,800 |
| 35,882 |
| 914,559 |
|
| Counsel and Corporate Secretary | 2014 | 288,000 |
| 404,074 |
| 219,600 |
| 35,732 |
| 947,406 |
|
(1) Mr. Bakke became Executive Vice President and Chief Operating Officer on April 21, 2014.
| |
(1)(2) | Mr. Riffee became Executive Vice President and Chief Financial Officer-elect on February 17, 2015 and became Chief Financial Officer on March 4, 2015. |
| |
| (3) | Mr. Morey resigned on July 26, 2016. The amount in column (g) for 2016 was calculated pursuant to Mr. Morey’s separation agreement. |
| |
| (4) | Column (e) represents the total grant date fair value of all equity awards computed in accordance with FASB ASC Topic 718. At the time of grant, it was not possible to predict the extent to which the performance measures for the three-year LTIP concluding December 31, 2013, would be achieved or the final award that would ultimately be realized by the NEO. The estimated grant date fair value of such three-year LTIP awards included for 2011 are as follows: |
|
| | |
| Grant Date Fair Value of Three-Year LTIP Awards Granted in 2011 |
George F. McKenzie | $2,276,800 |
William T. Camp | 978,418 |
|
Laura M. Franklin | 978,418 |
|
Thomas L. Regnell | 672,980 |
|
For performance-based awards, the amounts are based on the probable outcome of the performance conditions as of the grant date. The 2011 year includes the grant date fair value of the three-year performance-based LTIP award which was based on achieving various performance objectives within a performance period commencing January 1, 2011 and concluding December 31, 2013. The assumptions used in the grant date fair value calculations for the 40% component of the LTIP award based on absolute and relative TSR are included in Note 7 to the consolidated financial statements contained in our Form 10-K for the fiscal year ended December 31, 2013. For the remaining 60% component of the LTIP based on strategic plan fulfillment, the grant date fair value was determined to be target performance level. For an alternative view that we believe more accurately reflects incentive compensation received for a given year, we urge you to refer to the Total Direct Compensation Table on page 33.
| |
(2)(5) | Mr. Morey forfeited 19,423 shares in connection with his resignation on July 26, 2016. No common share awards granted to the NEOs listed above were forfeited during 2013, 20122015 or 2011. Due to change in payout timing in the officer plan, the performance-based STIP award for 2013 was granted in 2014 and is not reflected in “Stock Awards” column (e). For an alternative view that we believe more accurately reflects incentive compensation received for a given year, we urge you to refer to the Total Direct Compensation Table on page 33. 2014. |
| |
(3)(6) | The NEOsNEOs’ non-equity incentive plan compensation for 2013, 20122016, 2015 and 2011,2014, which is reported in this table, was determined by the Compensation Committee at its January 26, 2014, January 22, 2013 and December 1, 2011 meetings, respectively. For 2013 and 2012,February 8, 2017 (subject to the cash award was paid inAudit Committee's ratification of Washington REIT's final financial performance for the applicable period), February 201417, 2016 and February 2013, respectively. For 2011, 80% of the cash award was paid shortly after the meeting with the remaining 20% paid out in February 2012. The payments were recorded as expenses for the year to which they relate. 18, 2015 |
meetings, respectively. For 2016, 2015 and 2014, the cash award was paid in February of 2017, 2016 and 2015, respectively. The payments were recorded as expenses for the year to which they relate.
| |
(4)(7) | For 2013,2016, the amounts shown in column (i) include matching contributions to Washington REIT's 401(k) Plan of $7,650the life insurance premiums paid by us for group term life insurance, our match for each NEO (except Mr. McDermott) andindividual who made 401(k) contributions, auto allowances. The 2013 amount for Mr. McDermott also includes $21,249 inallowances, SERP contributions and membership dues. The table below shows the paymentcomponents of legal fees in connection with his employment letter. In addition, the 2013 amounts also include term life insurance premiums and SERP contributions as follows: $6,786 and $95,004, respectively,“All Other Compensation” for Mr. McKenzie; $2,717 and $54,252, respectively, for Mr. Camp; $1,549 and $45,504, respectively, for Ms. Franklin; $2,252 and $35,976, respectively, for Mr. Cederdahl; and $1,590 and $46,080, respectively, for Mr. Regnell.2016: |
| |
(5) | Mr. Cederdahl was promoted to Senior Vice President during 2012. |
|
| | | | | | | | | | | | | | | | | | | | | |
| Name | Life Insurance
($) | 401(k)
Company Match ($) | Auto
Allowances
($) | SERP Contributions ($) | Membership Dues ($) | Severance ($) | Total ($) |
| Mr. McDermott | $ | 5,106 |
| $ | 9,275 |
| $ | 14,000 |
| $ | 97,747 |
| $ | 1,463 |
| $ | — |
| $ | 127,591 |
|
| Mr. Bakke | 5,261 |
| 7,138 |
| 10,000 |
| 48,557 |
| 1,408 |
| — |
| 72,364 |
|
| Mr. Riffee | 5,018 |
| 9,275 |
| 6,100 |
| 62,904 |
| — |
| — |
| 83,297 |
|
| Mr. Morey | — |
| 6,424 |
| — |
| 15,960 |
| — |
| 200,000 |
| 222,384 |
|
For unvested and vested restricted shares, an amount equal to the dividends granted on the shares is paid at the same time dividends on common shares are paid.
the actual award paid to the executive could range from a 51% to 54% of the target incentive award for threshold performance and 172% to 177% of the target incentive award for high performance (again, without giving effect to the special STIP amendment for Mr. McKenzie, as described above under "Departing CEO Compensation Arrangements"). For the LTIP, the actual award paid to the executive could range from a 50% to 53% of the target incentive award for threshold performance and 175% to 180% of the target incentive award for high performance. As a result, the STIP and LTIP contained reasonable award opportunities that were capped at appropriate maximum levels.
The Compensation Committee retained discretion under the STIP and LTIP with respect to all or a significant portion of the total awards. Under the STIP, aggregate financial performance, strategic acquisition/disposition activity and the participant's performance compared to individual objectives represented all of the performance goals under the STIP (i.e., 100% of the performance goals are determined in the Compensation Committee's (or Chief Executive Officer's) discretion) (again, without giving effect to the special STIP amendment for Mr. McKenzie, as described above under "Departing CEO Compensation Arrangements"). Under the LTIP, strategic plan fulfillment, which was determined in the Compensation Committee's discretion, carried a 60% weighting.
Washington REIT has adopted a stock ownership policy by which each executive is required to maintain a multiple of his or her base salary in common shares. The multiples are 3x (for the Chief Executive Officer), 2x (for Executive Vice Presidents) and 1x (for Senior Vice Presidents and Managing Directors). This ownership policy requires each executive to maintain a meaningful equity interest that could significantly decrease in value if our business were not managed with long-term interests in mind.
Washington REIT has adopted a “clawback” policy by which, with respect to any incentive awards granted after March 20, 2013, the Board will have the right to seek or recoup all or any portion of the value of such awards in the event of a material restatement of Washington REIT's financial statements covering any of the three fiscal years preceding the payment of an award which results from fraud or misconduct committed by a recipient of such award.
We believe this combination of factors encouraged prudent management of Washington REIT. In particular, by structuring our compensation programs to ensure that a considerable amount of the wealth of our executives is tied to our long-term health, we believe we discourage executives from taking risks that are not in our long-term interests.
As noted above under “Anticipated Future STIP Modifications” and “Anticipated Future LTIP Modifications,” we are in the process of further revising the STIP and LTIP. The foregoing analysis was based on the STIP and LTIP as they have existed prior to such amendments. Nevertheless, the Compensation Committee expects that many of the general considerations set forth above will continue to apply to the STIP and LTIP after they are amended.
Compensation Committee Interlocks and Insider Participation
TheDuring the last completed fiscal year, the Compensation Committee composedwas comprised of Chairman Civera, Messrs. ByrnesButcher and Russell,Winns, and Ms. White,White. The Compensation Committee was responsible for making decisions and recommendations to the Board with respect to compensation matters. Ms. White resigned from the board effective August 19, 2016, and, therefore, no
longer serves as a member of the Compensation Committee. There are no Compensation Committee interlocks and no Washington REIT employee serves on the Compensation Committee.
Compensation Committee Report
The Compensation Committee of Washington REIT has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
SUBMITTED BY THE COMPENSATION COMMITTEE:
Edward S. Civera, Compensation Committee Chairman
Benjamin S. Butcher, Compensation Committee Member
Vice Adm. Anthony L. Winns (RET.), Compensation Committee Member
COMPENSATION TABLES
Summary Compensation Table
The Summary Compensation Table has been prepared to comply with the disclosure requirements of the SEC. The Summary Compensation Table sets forth the compensation paid for 2016, 2015 and 2014 to each of our "NEOs" (who are the executive officers set forth in the Summary Compensation Table) and includes as compensation for the indicated year all incentive compensation awards granted in that year (although the awards were made with respect to performance in other years). For an alternative view that we believe more accurately reflects incentive compensation received for a given year, we urge you to refer to the Total Direct Compensation Table on page 55.
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| | | | | | | | | | | | | | | | |
| (a) | (b) | (c) | (e) | (g) | (i) | (j) |
| Name and Principal Position | Year | Salary ($) | Stock Awards (4) (5) ($) | Non-Equity Incentive Plan Compensation (6) ($) | All Other Compensation (7) ($) | Total ($) |
| Paul T. McDermott | 2016 | $ | 575,000 |
| $ | 1,093,866 |
| $ | 969,191 |
| $ | 127,591 |
| $ | 2,765,648 |
|
| President and Chief | 2015 | 500,000 |
| 1,216,978 |
| 652,125 |
| 113,648 |
| 2,482,751 |
|
| Executive Officer | 2014 | 500,000 |
| 1,093,150 |
| 706,250 |
| 113,166 |
| 2,412,566 |
|
| | | | | | | |
| Thomas Q. Bakke (1) | 2016 | 387,500 |
| 564,926 |
| 536,271 |
| 72,364 |
| 1,561,061 |
|
| Executive Vice President and | 2015 | 350,000 |
| 604,924 |
| 375,331 |
| 68,607 |
| 1,398,862 |
|
| Chief Operating Officer | 2014 | 244,102 |
| 582,088 |
| 378,000 |
| 37,059 |
| 1,241,249 |
|
| | | | | | | |
| Stephen E. Riffee (2) | 2016 | 412,500 |
| 589,536 |
| 507,659 |
| 83,297 |
| 1,592,992 |
|
| Executive Vice President and | 2015 | 347,179 |
| 364,392 |
| 394,625 |
| 68,981 |
| 1,175,177 |
|
| Chief Financial Officer | | | | | | |
| | | | | | | |
| Thomas C. Morey (3) | 2016 | 191,093 |
| 204,720 |
| — |
| 222,384 |
| 618,197 |
|
| Senior Vice President, General | 2015 | 288,000 |
| 372,877 |
| 217,800 |
| 35,882 |
| 914,559 |
|
| Counsel and Corporate Secretary | 2014 | 288,000 |
| 404,074 |
| 219,600 |
| 35,732 |
| 947,406 |
|
(1) Mr. Bakke became Executive Vice President and Chief Operating Officer on April 21, 2014.
| |
| (2) | Mr. Riffee became Executive Vice President and Chief Financial Officer-elect on February 17, 2015 and became Chief Financial Officer on March 4, 2015. |
| |
| (3) | Mr. Morey resigned on July 26, 2016. The amount in column (g) for 2016 was calculated pursuant to Mr. Morey’s separation agreement. |
| |
| (4) | Column (e) represents the total grant date fair value of all equity awards computed in accordance with FASB ASC Topic 718. |
| |
| (5) | Mr. Morey forfeited 19,423 shares in connection with his resignation on July 26, 2016. No common share awards granted to the NEOs listed above were forfeited during 2015 or 2014. |
| |
| (6) | The NEOs’ non-equity incentive plan compensation for 2016, 2015 and 2014, which is reported in this table, was determined by the Compensation Committee at its February 8, 2017 (subject to the Audit Committee's ratification of Washington REIT's final financial performance for the applicable period), February 17, 2016 and February 18, 2015 |
meetings, respectively. For 2016, 2015 and 2014, the cash award was paid in February of 2017, 2016 and 2015, respectively. The payments were recorded as expenses for the year to which they relate.
| |
| (7) | For 2016, the amounts shown in column (i) include the life insurance premiums paid by us for group term life insurance, our match for each individual who made 401(k) contributions, auto allowances, SERP contributions and membership dues. The table below shows the components of “All Other Compensation” for 2016: |
|
| | | | | | | | | | | | | | | | | | | | | |
| Name | Life Insurance
($) | 401(k)
Company Match ($) | Auto
Allowances
($) | SERP Contributions ($) | Membership Dues ($) | Severance ($) | Total ($) |
| Mr. McDermott | $ | 5,106 |
| $ | 9,275 |
| $ | 14,000 |
| $ | 97,747 |
| $ | 1,463 |
| $ | — |
| $ | 127,591 |
|
| Mr. Bakke | 5,261 |
| 7,138 |
| 10,000 |
| 48,557 |
| 1,408 |
| — |
| 72,364 |
|
| Mr. Riffee | 5,018 |
| 9,275 |
| 6,100 |
| 62,904 |
| — |
| — |
| 83,297 |
|
| Mr. Morey | — |
| 6,424 |
| — |
| 15,960 |
| — |
| 200,000 |
| 222,384 |
|
Total Direct Compensation Table
The SEC's calculation of total compensation, as shown in the 2016 Summary Compensation Table set forth on page 53, includes several items that are driven by accounting and actuarial assumptions, which are not necessarily reflective of compensation actually realized by the NEOs in a particular year. To supplement the SEC-required disclosure, we have included the additional table below, which shows the equity incentive compensation awards that were actually received with respect to the applicable year, not the year the award was made.
|
| | | | | | | | | | | | | | | | |
| (a) | (b) | (c) | (e) | (g) | (i) | (j) |
| Name and Principal Position | Year | Salary
($) | Stock Awards
(1) ($) | Non-Equity Incentive Plan Compensation
($) | All Other Compensation
($) | Total Direct Compensation
($) |
| Paul T. McDermott | 2016 | $ | 575,000 |
| $ | 2,295,783 |
| $ | 969,191 |
| $ | 127,591 |
| $ | 3,967,565 |
|
| President and Chief Executive | 2015 | 500,000 |
| 1,317,104 |
| 652,125 |
| 113,648 |
| 2,582,877 |
|
| Officer | 2014 | 500,000 |
| 1,083,678 |
| 706,250 |
| 113,166 |
| 2,403,094 |
|
| | | | | | | |
| Thomas Q. Bakke | 2016 | 387,500 |
| 1,125,878 |
| 536,271 |
| 72,364 |
| 2,122,013 |
|
| Executive Vice President and | 2015 | 350,000 |
| 663,592 |
| 375,331 |
| 68,607 |
| 1,457,530 |
|
| Chief Operating Officer | 2014 | 244,102 |
| 546,366 |
| 378,000 |
| 37,059 |
| 1,205,527 |
|
| | | | | | | |
| Stephen E. Riffee | 2016 | 412,500 |
| 502,525 |
| 507,659 |
| 83,297 |
| 1,505,981 |
|
| Executive Vice President and | 2015 | 347,179 |
| 520,928 |
| 394,625 |
| 68,981 |
| 1,331,713 |
|
| Chief Financial Officer | | | | | | |
| | | | | | | |
| Thomas C. Morey (2) | 2016 | 191,093 |
| — |
| — |
| 222,384 |
| 413,477 |
|
| Senior Vice President, General | 2015 | 288,000 |
| 416,534 |
| 217,800 |
| 35,882 |
| 958,216 |
|
| Counsel and Corporate Secretary | 2014 | 288,000 |
| 333,526 |
| 219,600 |
| 35,732 |
| 876,858 |
|
| |
| (1) | These amounts differ substantially from the amounts reported as Stock Awards in column (e) in the Summary Compensation Table required under SEC rules and are not a substitute for the amounts reported in the Summary Compensation Table. Total Direct Compensation in this table represents: (1) total compensation, as determined under applicable SEC rules and as set forth in column (j) in the Summary Compensation Table on page 53, minus (2) the aggregate fair value of equity awards as reflected in the Stock Awards column (e) in the Summary Compensation Table, plus (3) incentive compensation awards that were actually received with respect to the applicable performance year. |
| |
| (2) | Mr. Morey resigned on July 26, 2016. |
Grants of Plan-Based Awards
The following table presents information regarding grants made to the NEOs during 2016 under Washington REIT's STIP and LTIP.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (l) |
| Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock and Option Awards
($) |
Threshold
($) | Target
($) | Maximum
($) | Threshold ($) | Target ($) | Maximum ($) |
| Paul T. McDermott | 1/1/2016 | | | | $ | 400,000 |
| $ | 750,000 |
| $ | 1,350,000 |
| | | $ | 480,900 |
| (2) |
| | 2/17/2016 | | | | | | | 24,627 |
| (3) | 612,966 |
| |
| | 2/17/2016 | $ | 333,500 |
| $ | 649,750 |
| $ | 1,121,250 |
| | | | | | | |
| | | | | | | | | | | | |
| Thomas Q. Bakke | 1/1/2016 | | | | 175,000 |
| 332,500 |
| 595,000 |
| | | 212,135 |
| (2) |
| | 2/17/2016 | | | | | | | 14,174 |
| (3) | 352,791 |
| |
| | 2/17/2016 | 186,000 |
| 360,375 |
| 620,000 |
| | | | | | | |
| | | | | | | | | | | | |
| Stephen E. Riffee | 1/1/2016 | | | | 176,000 |
| 380,000 |
| 596,000 |
| | | 218,600 |
| (2) |
| | 2/17/2016 | | | | | | | 14,903 |
| (3) | 370,936 |
| |
| | 2/17/2016 | 173,250 |
| 360,938 |
| 577,500 |
| | | | | | | |
| | | | | | | | | | | | |
| Thomas C. Morey (4) | 1/1/2016 | | | | 115,200 |
| 230,400 |
| 403,200 |
| | | 144,230 |
| (2) |
| | 2/17/2016 | | | | | | | 8,225 |
| (3) | 204,720 |
| |
| | 2/17/2016 | 100,800 |
| 187,200 |
| 331,200 |
| | | | | | | |
| |
| (1) | The amounts shown in columns (c), (d) and (e) reflect the threshold, target and maximum payment levels for 2016 under the 50% cash STIP component which were established on February 17, 2016. The actual cash bonuses received by each of the named executive officers for performance in 2016, paid in 2017, are set out in column (g) of the Summary Compensation Table. |
| |
| (2) | Amounts represent LTIP awards based on achievement of performance objectives over a three-year performance period (commencing January 1, 2016 and concluding December 31, 2018). For performance below threshold levels, no incentives will be paid pursuant to the program, and the maximum award will only be paid if actual performance meets or exceeds the high level of performance. The award will be paid out in a number of unrestricted shares and restricted shares that vest over a one-year period commencing on January 1 following the end of the performance period, with the total number of restricted and unrestricted shares issued determined by dividing the dollar amount payable by the closing price per share on January 1 or if such January 1 is not a trading day, the first trading day following such January 1. |
| |
| (3) | Amounts represent performance-based restricted share awards pursuant to the STIP for the performance period commencing January 1, 2015 and concluding December 31, 2015 that vest over three years, with one-third vesting on December 31, 2016, 2017 and 2018. |
| |
| (4) | Mr. Morey resigned on July 26, 2016. |
For unvested and vested restricted shares, an amount equal to the dividends granted on the shares is paid at the same time dividends on common shares are paid.
Outstanding Equity Awards at Fiscal Year-End
The following table presents information regarding the outstanding equity awards held by each of the NEOs as of December 31, 2016, including the vesting dates for the portion of these awards that had not vested as of that date.
|
| | | | | | | | | |
| (a) | (g) | (h) | (i) | (j) |
| | | Stock Awards | |
| Name | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested
($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($) |
| Paul T. McDermott (1) | 35,140 |
| $ | 1,148,727 |
| — |
| — |
|
| | | | | |
| Thomas Q. Bakke (2) | 19,923 |
| 651,283 |
| — |
| — |
|
| | | | | |
| Stephen E. Riffee (3) | 13,459 |
| 439,975 |
| — |
| — |
|
| | | | | |
| Thomas C. Morey (4) | — |
| — |
| — |
| — |
|
| |
| (1) | Mr. McDermott's share awards listed in column (g) vest according to the following schedule: 26,931 shares will vest on December 31, 2017 and 8,209 shares will vest on December 31, 2018. |
| |
| (2) | Mr. Bakke's share awards listed in column (g) vest according to the following schedule: 1,383 shares will vest on April 21, 2017; 13,816 shares will vest on December 31, 2017 and 4,724 shares will vest on December 31, 2018. |
| |
| (3) | Mr. Riffee's share awards listed in column (g) vest according to the following schedule: 1,762 shares vested on February 17, 2017; 4,968 shares will vest on December 31, 2017; 1,762 shares will vest on February 17, 2018 and 4,967 shares will vest on December 31, 2018. |
| |
| (4) | Mr. Morey's unvested shares were forfeited upon his resignation. Mr. Morey resigned on July 26, 2016. |
2016 Option Exercises and Stock Vested
The following table sets forth the value realized by our NEOs in 2016 upon the vesting of common share awards in 2016. None of our NEOs had outstanding options or exercises of options in 2016.
|
| | | | | |
| | Stock Awards |
| Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting
($) |
| Paul T. McDermott | 70,986 |
| $ | 2,296,066 |
|
| Thomas Q. Bakke | 31,597 |
| 1,022,569 |
|
| Stephen E. Riffee | 6,731 |
| 206,285 |
|
| Thomas C. Morey (1) | — |
| — |
|
(1) Mr. Morey resigned on July 26, 2016.
Non-Qualified Deferred Compensation
The following table presents information regarding the contributions to and earnings on the NEOs' deferred compensation balances during 2016 and also shows the total deferred amounts for the NEOs as of December 31, 2016.
|
| | | | | | | | | | | | | | | |
| (a) | (b) | (c) | (d) | (e) | (f) |
| Name | Executive
Contributions
in Last FY
($)(1) | Registrant
Contribution in
Last FY
($)(2) | Aggregate
Earnings in
Last FY
($)(3) | Aggregate
Withdrawals/
Distributions
($) | Aggregate
Balance at
Last FYE
($)(4) |
| Paul T. McDermott | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| Thomas Q. Bakke | — |
| — |
| — |
| — |
| — |
|
| Stephen E. Riffee | — |
| — |
| — |
| — |
| — |
|
| Thomas C. Morey (5) | — |
| — |
| — |
| — |
| — |
|
| |
| (1) | The amounts reflected in this column are reported as compensation for the last completed fiscal year in the Summary Compensation Table. |
| |
| (2) | The amounts reflected in this column were reported as compensation in prior fiscal years and are included in this table due to vesting during the last completed fiscal year. |
| |
| (3) | The amounts reflected in this column are not included in the Summary Compensation Table because they do not constitute “above-market” or “preferential” earnings, as those terms are defined in SEC Regulation S-K 402(c)(2)(viii)(B). |
| |
| (4) | The amounts reflected in this column include contributions reported as compensation for the last fiscal year, as set forth in columns (b) and (c), amounts reported as compensation in prior fiscal years and earnings (which were not required to be reported as compensation), less aggregate withdrawals/distributions currently and previously reported in this table. |
| |
| (5) | Mr. Morey resigned on July 26, 2016. |
Supplemental Executive Retirement Plan
The following table presents information regarding the contributions to and earnings on the NEOs' SERP balances during 2016 as of December 31, 2016.
|
| | | | | | | | | | | | | | | |
| (a) | (b) | (c) | (d) | (e) | (f) |
| Name | Executive
Contributions
in Last FY
($) | Registrant
Contribution in
Last FY
($) (1) | Aggregate
Earnings in
Last FY
($) (2) | Aggregate
Withdrawals/
Distributions
($) | Aggregate
Balance at
Last FYE
($) |
| Paul T. McDermott | $ | — |
| $ | 97,747 |
| $ | 15,973 |
| $ | — |
| $ | 311,324 |
|
| Thomas Q. Bakke | — |
| 48,557 |
| 7,389 |
| — |
| 128,349 |
|
| Stephen E. Riffee | — |
| 62,904 |
| 7,451 |
| — |
| 120,193 |
|
| Thomas C. Morey (3) | — |
| 15,960 |
| 18,327 |
| — |
| — |
|
| |
| (1) | The amounts reflected in this column are reported as compensation for the last completed fiscal year in the Summary Compensation Table. |
| |
| (2) | The amounts reflected in this column are not included in the Summary Compensation Table because they do not constitute “above-market” or “preferential” earnings, as those terms are defined in SEC Regulation S-K 402(c)(2)(viii)(B). |
| |
| (3) | Mr. Morey resigned on July 26, 2016 and his unvested balance of $316,817 was forfeited. |
Potential Payments upon Change in Control
Washington REIT has entered into change in control agreements with the NEOs which entitle them to continuation of compensation and other benefits if Washington REIT is subject to a change in control, the NEO's employment with Washington REIT or its successor is terminated by Washington REIT or its successor, other than for “cause,” or by the NEO for “good reason” and such termination occurs within 24 or 36 months of the change in control. The formula to calculate the change in control benefit is similar for each of the NEO's, with the variable being whether the benefit will be paid for 24 or 36 months. The formula is as follows:
| |
| 1. | Continuation of base salary at the rate in effect as of the termination date for a period of 24 or 36 months from the date of termination. |
| |
| 2. | Payment of an annual bonus for each calendar year or partial calendar in which the NEO receives salary continuation as described above, in an amount equal to the average annual short-term incentive plan compensation received during the three years prior to the involuntary termination. |
| |
| 3. | Payment of the full cost of COBRA continuation coverage for the period of time in which salary continuation pursuant to the change in control agreement is paid, up to a maximum of 18 months or until the NEO obtains other comparable coverage, whichever is sooner. |
| |
| 4. | Immediate vesting in all unvested common share grants and restricted share units granted to the NEO under Washington REIT's long-term incentive plan and immediate vesting in the SERP and deferred compensation plans. |
The following table lists the estimated amounts each of the NEOs would have become entitled to under their change in control agreements had their employment with Washington REIT terminated on December 31, 2016, under the circumstances described above.
|
| | | | | | | | | | | | | | | | | |
| Name | 2016 Base Salary
($) | Average 3 Year
Bonus ($) | Annual Change in Control Benefit Amount ($) | Change in Control Benefit Formula (# of months) | Vesting of all unvested Share Grants, SERP and Deferred Compensation
($) | Total Change in Control Benefit Amount
(1)(2) ($) |
| Paul T. McDermott | $ | 650,000 |
| $ | 1,551,711 |
| $ | 2,201,711 |
| 36 |
| $ | 4,048,090 |
| $ | 10,653,223 |
|
| Thomas Q. Bakke | 425,000 |
| 859,735 |
| 1,284,735 |
| 24 |
| 1,920,649 |
| 4,490,119 |
|
| Stephen E. Riffee | 425,000 |
| 902,284 |
| 1,327,284 |
| 24 |
| 1,711,862 |
| 4,366,430 |
|
| |
| (1) | The cost of COBRA continuation benefits has not been included in the total change in control benefit amount, as the value would not be material. |
| |
| (2) | If the NEO is subject to an excise tax pursuant to Section 4999 of the Code, the NEO will not receive a tax gross-up payment. Each of our change of control agreements was amended effective November 5, 2012 to eliminate the executive's right to receive a tax “gross-up” payment based on Section 4999 of the Code. As a result, we no longer have the obligation to provide tax “gross-up” payments to our executives with respect to amounts owed under Section 4999 of the Code. |
PROPOSAL 5: ADVISORY VOTE ON FREQUENCY OF ADVISORY VOTE ON SAY-ON-PAY VOTE
Description of Proposal
Pursuant to the Dodd-Frank Act, in 2011 and Section 14A of the Securities Exchange Act, every six years we provided our shareholders with the opportunity to vote, on an advisory basis, regarding whether the say-on-pay vote (as described in Proposal 4) should occur every one, two or three years. This proposal is commonly known as a “say-on-frequency” proposal. This say-on-frequency proposal must be submitted to shareholders at least once every six calendar years. We are, therefore, once again providing our shareholders with the opportunity to vote on this say-on-frequency proposal. Shareholders have the option to abstain from voting on the matter. The next say-on-frequency vote will occur in 2023.
The Board has determined that an annual executive compensation advisory vote is the best approach for Washington REIT and its shareholders for several reasons, including the following:
We believe that furnishing our shareholders with an annual executive compensation advisory vote will provide valuable feedback to the Compensation Committee and the Board on our compensation philosophy, policies and practices as disclosed in the proxy statement each year. We believe this voting frequency provides the highest level of communication between shareholders, on the one hand, and the Board and Compensation Committee, on the other hand.
We believe an annual executive compensation advisory vote is consistent with our goal to regularly receive input from our shareholders on corporate governance matters and executive compensation philosophy, policies and practices. We understand that our shareholders may from time to time have different views as to what is the best approach for Washington REIT, and we look forward to hearing from them in annual executive compensation advisory votes.
We believe that providing the executive compensation advisory vote every two or three years may prevent shareholders from communicating in a meaningful and coherent way. For example, we may not know whether the shareholder vote approves or disapproves of compensation for the reporting period or compensation for the previous reporting periods, or both. As a result, it could be difficult to discern the implications of the executive compensation advisory vote.
Pursuant to the Dodd-Frank Act, this vote is advisory and not binding on Washington REIT or the Board in any way, and the Board or the Compensation Committee may determine that it is in the best interests of Washington REIT to hold an advisory vote on executive compensation more or less frequently than the option recommended by our shareholders. Nevertheless, the Compensation Committee and the Board value the opinions of the shareholders and will consider the outcome of the vote when determining the frequency of the executive compensation advisory vote.
Voting Matters
The form of Proxy Card enables shareholders to vote, by checking the appropriate box, to recommend that a vote on executive compensation take place every one year, every two years or every three years, or to abstain from voting. Although the Board is making a recommendation with respect to this proposal, shareholders are being asked to vote on the choices specified above, and not whether they agree or disagree with the Board’s recommendation. Under our bylaws, the affirmative vote of a majority of the votes cast is required for approval, on a non-binding, advisory basis, of the frequency of the Say-on-Pay vote.
Abstentions and other shares not voted (whether broker non-votes, if any, or otherwise) will not be counted as votes cast and will have no effect on the result of this vote.
Notwithstanding the approval requirements set forth in the previous paragraph, the vote remains advisory, and the Board and Compensation Committee value the opinions of our shareholders regardless of whether approval (as defined in the previous paragraph) is actually obtained. Because shareholders have several voting choices, it is possible that no single choice will receive a majority of the votes cast. If that occurs, we will consider the option receiving the most votes to be the option selected by shareholders.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE “1 YEAR” ALTERNATIVE SET FORTH IN THE PROXY CARD.
PROPOSAL 6: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Description of Proposal
The firm of Ernst & Young LLP served as Washington REIT's independent registered public accounting firm for 2016. The Audit Committee has appointed Ernst & Young LLP as Washington REIT's independent registered public accounting firm for 2017.
If this appointment is not ratified by our shareholders, the Audit Committee may re-consider the appointment. Even if the selection is ratified, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the year if it determines that such change would be in the best interests of Washington REIT.
Representatives of Ernst & Young LLP are expected to attend the Annual Meeting and will have the opportunity to make a statement if they desire to do so. They are also expected to be available to respond to appropriate questions.
Voting Matters
Under our bylaws, ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2017 requires the affirmative vote of a majority of the votes cast. A majority of votes cast means that the number of votes "FOR" a proposal must exceed the number of votes "AGAINST” that proposal. Abstentions and other shares not voted will not be counted as votes cast and will have no effect on the result of this vote.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS WASHINGTON REIT'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2017.
ACCOUNTING/AUDIT COMMITTEE MATTERS
Principal Accounting Firm Fees
The following table sets forth the aggregate fees billed to Washington REIT for the years ended December 31, 2016 and 2015 by Washington REIT's independent registered public accounting firm, Ernst & Young LLP. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the public accountant's independence.
|
| | | | | | |
| | 2016 | 2015 |
| Audit Fees (a)(b) | $ | 1,422,775 |
| $ | 1,305,315 |
|
| Audit-Related Fees (c) | 15,000 |
| 73,000 |
|
| Tax Fees (d) | 184,430 |
| 319,585 |
|
| All Other Fees | — |
| — |
|
| Total Fees | $ | 1,622,205 |
| $ | 1,697,900 |
|
| |
| (a) | Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered. |
| |
| (b) | Audit fees include the annual audit fee and fees for reviews of offering memorandums and other filings, performance of comfort procedures and issuance of comfort and bring down letters. |
| |
| (c) | Audit-related fees consist of the annual audit fees of certain subsidiaries, notwithstanding when the fees were billed or when the services were rendered. |
| |
| (d) | Includes fees and expenses for tax services, including tax compliance, tax advice and tax planning, rendered from January through the end of the fiscal year, notwithstanding when the fees and expenses were billed. |
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax and other services performed by the independent auditor. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent auditor is engaged to perform it. The Audit Committee has delegated to the Chairman of the Audit Committee authority to approve permitted services provided that the Chairman reports any decisions to the Committee at its next scheduled meeting. All services performed by Ernst & Young LLP for the fiscal year ending December 31, 2016 were preapproved by the Audit Committee or the Chairman of the Audit Committee.
Audit Committee Report
The Board maintains an Audit Committee, currently comprised of four of Washington REIT's independent trustees. The Board and the Audit Committee believe that the Audit Committee's current member composition satisfies Section 303A of the New York Stock Exchange's listed company manual. The Audit Committee oversees Washington REIT's financial process on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. The independent registered public accounting firm Ernst & Young LLP is responsible for expressing an opinion on the conformity of those financial statements with generally accepted accounting principles and the effectiveness of Washington REIT's internal controls over financial reporting in accordance with the standards of the Public
Company Accounting Oversight Board.
In fulfilling its oversight responsibilities, The members of the Audit Committee reviewedof the auditedBoard of Washington REIT submit this report in connection with the committee’s review of the financial statements inreports for the Annual Report on Form 10-K for thefiscal year ended December 31, 2013, with management, including a discussion of the quality, and not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements and management's assessment of the effectiveness of Washington REIT's internal controls over financial reporting.
The Audit Committee discussed with Washington REIT's independent registered public accounting firm the overall scope and plans for their audit. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of their examination, their evaluation of Washington REIT's internal controls and the overall quality of Washington REIT's financial reporting.
The Audit Committee reviewed with the independent registered public accounting firm their judgments2016 as to the quality, and not just the acceptability, of Washington REIT's accounting principles and such other matters as are required to be discussed with the Audit Committee by Public Company Accounting Oversight Board Auditing Standards No. 16, Communications with Audit Committees. In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence and has discussed with the independent registered public accounting firm their independence from management and Washington REIT. follows:
| |
| 1. | In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2016, with management, including a discussion of the quality, and not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements and management's assessment of the effectiveness of Washington REIT's internal controls over financial reporting. |
| |
| 2. | The Audit Committee discussed with Washington REIT's independent registered public accounting firm the overall scope and plans for their audit. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of their examination, their evaluation of Washington REIT's internal controls and the overall quality of Washington REIT's financial reporting. |
| |
| 3. | The Audit Committee reviewed with the independent registered public accounting firm their judgments as to the quality, and not just the acceptability, of Washington REIT's accounting principles and such other matters as are required to be discussed with the Audit Committee by Public Company Accounting Oversight Board Auditing Standards No. 61, Communications with Audit Committees. |
| |
| 4. | In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence and has discussed with the independent registered public accounting firm their independence from management and Washington REIT. |
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in Washington REIT's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and for filing with the SEC.
SUBMITTED BYTHE AUDIT COMMITTEE
William G. Byrnes, Audit Committee Chairman
Benjamin S. Butcher, Audit Committee Member
Edward S. Civera, Audit Committee Member
John P. McDaniel,Thomas H. Nolan, Jr., Audit Committee Member
Anthony L. Winns, Audit Committee Member
Principal Accounting Firm Fees
The following table sets forth the aggregate fees billed to Washington REIT for the years ended December 31, 2013 and 2012 by Washington REIT's independent registered public accounting firm, Ernst & Young LLP. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the public accountant's independence.
|
| | | | | | |
| | 2013 | 2012 |
| Audit Fees (a)(b) | $ | 1,049,776 |
| $ | 1,055,406 |
|
| Audit-Related Fees (c) | 69,000 |
| 60,000 |
|
| Tax Fees (d) | 138,151 |
| 174,263 |
|
| All Other Fees | — |
| — |
|
| Total Fees | $ | 1,256,927 |
| $ | 1,289,669 |
|
| |
(a) | Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered. |
| |
(b) | Audit fees include the annual audit fee and fees for reviews of offering memorandums, performance of comfort procedures and issuance of comfort and bring down letters. |
| |
(c) | Audit-related fees consist of the annual audit fees of certain subsidiaries, notwithstanding when the fees were billed or when the services were rendered. |
| |
(d) | Includes fees and expenses for tax services, including tax compliance, tax advice and tax planning, rendered from January through the end of the fiscal year, notwithstanding when the fees and expenses were billed. |
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax and other services performed by the independent auditor. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent auditor is engaged to perform it. The Audit Committee has delegated to the Chairman of the Audit Committee authority to approve permitted services provided that the Chairman reports any decisions to the Committee at its next scheduled meeting.
PROPOSAL 1:
ELECTION OF TRUSTEES
Description of Proposal
Edward S. Civera and Wendelin A. White have been nominated for election as trustees at the Annual Meeting, to serve for a term of three years and until their successors are duly elected and qualify.
Edward S. Civera and Wendelin A. White are currently serving as trustees, and they were recommended for nomination for re-election by the members of the Corporate Governance/Nominating Committee.
Voting Matters
Under our bylaws, the election of the trustees requires the affirmative vote of a majority of the total votes cast for and against such trustee. Abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum.
If either of Mr. Civera or Ms. White were to become unable or unwilling to stand for election for any reason not presently known or contemplated, the persons named in the enclosed Proxy Card will have discretionary authority to vote pursuant to the Proxy Card for a substitute nominee nominated by the Board, or the Board, on the recommendation of the Corporate Governance/Nominating Committee, may reduce the size of the Board and number of nominees.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF MR. CIVERA AND MS. WHITE.
PROPOSAL 2:
RATIFICATION OF AUDITOR
Description of Proposal
The firm of Ernst & Young LLP served as Washington REIT's independent registered public accounting firm for 2013. The Audit Committee has appointed Ernst & Young LLP as Washington REIT's independent registered public accounting firm for 2014.
If this appointment is not ratified by our shareholders, the Audit Committee may re-consider the appointment. Even if the selection is ratified, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the year if it determines that such change would be in the best interests of Washington REIT.
Representatives of Ernst & Young LLP are expected to attend the Annual Meeting and will have the opportunity to make a statement if they desire to do so. They are also expected to be available to respond to appropriate questions.
Voting Matters
Under our bylaws, ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2014 requires the affirmative vote of a majority of the votes cast. Abstentions will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS WASHINGTON REIT'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2014.
PROPOSAL 3:
EXECUTIVE COMPENSATION ADVISORY VOTE
Description of Proposal
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), we provide our shareholders with the opportunity to vote, on an advisory basis, on the compensation of our named executive officers, or NEOs, as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. This proposal is commonly known as a “say-on-pay” proposal.
Please review the section of this Proxy Statement entitled “Executive Compensation” for additional details regarding our executive compensation program. Such section includes, on page 14, a “CD&A Executive Summary” describing the goals of Washington REIT's executive compensation program and the significant actions taken by the Compensation Committee during the 2013 compensation year.
We are asking our shareholders to indicate their support for our NEO compensation as described in this Proxy Statement. This proposal gives our shareholders the opportunity to express their views on our NEO compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we will ask our shareholders to vote FOR the following resolution at the Annual Meeting:
“RESOLVED, that Washington REIT's shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in Washington REIT's Proxy Statement for the 2014 Annual Meeting of Shareholders, pursuant to the compensation disclosure rules of the Securities and Exchange Commission (Item 402 of Regulation S-K), including the Compensation Discussion and Analysis, the 2013 Summary Compensation Table and narrative discussions and the other related tables and disclosure.”
As provided by the Dodd-Frank Act, this vote is advisory, and therefore not binding on Washington REIT, the Board or the Compensation Committee. However, the Board and Compensation Committee value the views of our shareholders and to the extent there is any significant vote against the NEO compensation as disclosed in this Proxy Statement, we will consider our shareholders' concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Voting Matters
Under our bylaws, approval of the say-on-pay proposal requires the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum.
Notwithstanding the approval requirements set forth in the previous paragraph, the vote remains advisory, and the Board and Compensation Committee value the opinions of the shareholders regardless of whether approval (as defined in the previous paragraph) is actually obtained.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC.
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that trustees, officers and persons who own more than 10% of the common shares file initial reports of ownership of the common shares and changes in such ownership with the SEC. To Washington REIT's knowledge, based solely on a review of copies of forms submitted to Washington REIT during and with respect to 2013 and on written representations from our trustees and executive officers, all required reports were filed on a timely basis during 2013 except one report. Ms. White did not timely file a Form 4 in 2013 reporting a single transaction due to a failure by her brokerage firm to comply with her express instructions to undertake no transactions in Washington REIT shares without her prior approval.
Annual Report
Washington REIT's 2013 Annual Report to Shareholders is being mailed or made available electronically to shareholders concurrently with this Proxy Statement and does not form part of proxy solicitation material.
Shareholders may also request a free copy of our 2013 Annual Report on Form 10-K, including applicable financial statements, schedules and exhibits by sending a written request to: Washington Real Estate Investment Trust, 6110 Executive Boulevard, Suite 800, Rockville, Maryland 20852, Attention Investor Relations. Alternatively, shareholders can access the 2013 Form 10-K and other financial information on our website at: http://www.writ.com.
Code of Ethics
Washington REIT has adopted a Code of Ethics that applies to all of its trustees, officers and employees. The Code of Ethics is available on our website, www.writ.com. A copy of the code is also available upon written request. Washington REIT intends to post on our website any amendments to, or waivers from, the Code of Ethics promptly following the date of such amendment or waiver.
Corporate Governance Guidelines
Washington REIT has adopted Corporate Governance Guidelines. Our Corporate Governance Guidelines, as well as the Committee Charters, are available on our website, www.writ.com, and upon written request.
Solicitation of Proxies
Solicitation of proxies may be made by mail, personal interview, telephone or other means by officers, trustees and employees of Washington REIT for which they will receive no compensation in addition to their normal compensation. Washington REIT may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of common shares that those companies or persons hold of record. Washington REIT will reimburse these forwarding expenses. The cost of the solicitation of proxies will be paid by Washington REIT.
Washington REIT has also hired MacKenzie Partners, Inc. to assist in distributing and soliciting proxies and will pay approximately $8,000 plus expenses for these services.
Householding ofShareholder Proposals for Our 2018 Annual Meeting Materialsof Shareholders
Some banks, brokers and other nominee record holders may be “householding” this Proxy StatementThe Board will provide for presentation of proposals by shareholders at the 2018 Annual Meeting of Shareholders, provided that these proposals are submitted by eligible shareholders who have complied with the relevant regulations of the SEC and our Annual Report. This means that only one copybylaws regarding shareholder proposals.
Any shareholder proposal pursuant to Rule 14a-8 under the Securities Exchange Act of this Proxy Statement and our Annual Report may have been sent1934 intended to multiple shareholders in one household. We will promptly deliver a separate copy of either document to shareholders who write or call usbe presented at the following address2018 Annual Meeting must be received at our executive offices on or telephone number: Washington Real Estate Investment Trust, 6110 Executive Boulevard, Suite 800, Rockville, Maryland 20852, Attention: Investor Relations; telephone 301-984-9400. Shareholders wishing to receive separate copies of our Proxy Statement and Annual Report in the future, or shareholders currently receiving multiple copies of the Proxy Statement and Annual Report at their address who would prefer that only a single copy of each be delivered there, should contact their bank, broker or other nominee record holder.
2015 Annual Meeting
Rule 14a-8 Shareholder Proposals
Under SEC Rule 14a-8, a shareholder may present a proposalbefore December 11, 2017 to be considered for inclusion in our 2018 proxy statement materials.
Shareholders wishing to submit proposals or trustee nominations to be presented at the 2018 Annual Meeting that are not to be included in our proxy statement materials must deliver notice to us at our executive offices not less than 120 and no more than 150 days before the first anniversary of the date of Proxy Statement relating to our 2015 Annual Meeting. These proposals must be addressed to our Corporate Secretary, sent to our corporate headquarters and received by Washington REIT no later than November 28, 2014. In addition, they must otherwise be in compliance with applicable laws and SEC regulations.
Nominations and Other Business
Nominations of individuals for election as a trustee and other shareholder proposals (i.e., not under SEC Rule 14a-8) for our 2015the preceding year's Annual Meeting must, in each case, be made pursuant to timely notice in writing to our Corporate Secretary. The notice must set forth certain information concerning the nomination or proposal, as specified in our current bylaws. Any shareholder who wishes to make such a nomination or proposal must notify us in accordance with our bylaws(i.e., between October 29, 2014November 11, 2017 and 5:00 p.m., Eastern time,Time, on November 28, 2014. The presiding officerDecember 11, 2017. Shareholders are advised to review our bylaws, which contain additional requirements with respect to advance notice of shareholder proposals and trustee nominations. Any shareholder desiring a copy of our bylaws will be furnished one without charge upon written request to the Secretary.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the meeting will refuse to acknowledge any nomination or proposal not madeSecurities Exchange Act of 1934, as amended, requires that trustees, officers and persons who own more than 10% of the common shares file initial reports of ownership of the common shares and changes in compliancesuch ownership with the foregoing procedures.SEC. Based solely upon review of Forms 3 and 4 and amendments thereto and written representations furnished to us during the most recent fiscal year, no person who at any time during the fiscal year was a director, officer, or beneficial owner or more than 10% of any class of our equity securities failed to file on a timely basis, as disclosed in the above forms, reports required by Section 16(a) of the Exchange Act during the most recent fiscal year, except that the following Form 4 was filed late:
The Form 4 reporting the forfeiture of shares in order to satisfy withholding tax obligations related to the vesting on October 1, 2015 of restricted stock grant made to our Chief Executive Officer, Paul T. McDermott
Annual Report
Washington REIT's 2016 Annual Report to Shareholders is being mailed or made available electronically to shareholders concurrently with this Proxy Statement and does not form part of proxy solicitation material.
Shareholders may also request a free copy of our 2016 Annual Report on Form 10-K, including applicable financial statements, schedules and exhibits by sending a written request to: Washington Real Estate Investment Trust, 1775 Eye Street, N.W., Suite 1000, Washington, D.C. 20006, Attention Investor Relations. Alternatively, shareholders can access the 2016 Form 10-K and other financial information on our website at: www.washreit.com.
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/s/ Laura M. Franklin Kelly N. Shiflett | |
Laura M. FranklinKelly N. Shiflett | |
| Corporate Secretary | |
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March 28, 2014April __, 2017 |
APPENDIX A
DECLASSIFICATION AMENDMENT
If Proposal 1 is approved by the shareholders, Section 5.2 of Washington Real Estate Investment Trust’s Articles of Amendment and Restatement would be amended as set forth below. Proposed additions are indicated by underline and proposed deletions are indicated by strike-through.
Section 5.2 Number, Classification and Vacancies. The number of Trustees of the Corporation shall be nineeight (8), which number may be increased or decreased only by the Board pursuant to the Bylaws. The Trustees shall be classified, with respect to the terms for which they severally hold office, into three classes, Class I, Class II and Class III, as nearly equal in number as possible. Initially, the Class I Trustees shall be John M. Derrick, Jr., Charles T. Nason and Thomas Edgie Russell, III; the Class II Trustees shall be William G. Byrnes, John P. McDaniel and George F. McKenzie; and the Class III Trustees shall be Edward S. Civera, Terence C. Golden and Wendelin A. White. The Class I Trustees shall serveUntil the 2019 annual meeting of shareholders, the trustees of the Trust shall be divided into more than one class, reflecting the classified board structure that was in existence prior to the 2017 annual meeting of shareholders, with the Trustees of each class serving for a term expiring at the annual meeting of shareholders to be held in 2012; the Class II Trustees shall serve for a term expiring at the annual meeting of shareholders to be held in 2013; and the Class III Trustees shall serve for a term expiring at the annual meeting of shareholders to be held in 2014. At each annual meeting of shareholders, the successor or successors of the class of Trustees whose term expires at that meeting shall be elected in accordance with the Bylaws, and shall hold office for a term expiring at the annual meeting of shareholders held induring the third (3rd) year following the year of theirafter election. The Trustees elected to each class shall hold office(except as set forth in this Section 5.2) and until their successors aresuccessor shall have been duly elected and qualify,shall have qualified or until their earlier removal or resignation. It shall not be necessary to list in the Declaration of Trust the names and addresses of any Trustees hereinafter elected.At the 2017 annual meeting of shareholders, the Trustees who shall be elected at the 2017 annual meeting to fill the trusteeships held by Trustees whose terms expire at the 2017 annual meeting shall be elected for one-year terms expiring at the 2018 annual meeting of shareholders; at the 2018 annual meeting of shareholders, the Trustees who shall be elected at the 2018 annual meeting to fill the trusteeships held by Trustees whose terms expire at the 2018 annual meeting shall be elected for one-year terms expiring at the 2019 annual meeting of shareholders; at the 2019 annual meeting of shareholders, the terms of all Trustees shall expire and at such annual meeting, and at each annual meeting thereafter, all Trustees shall be elected for one-year terms expiring at the next annual meeting. Each Trustee elected at the 2017 annual meeting of shareholders shall serve a one-year term as provided in this Section 5.2 notwithstanding that the Articles effecting these amendments to declassify the Board of Trustees as provided herein may be filed with the Department after the 2017 annual meeting of shareholders at which such Trustee was elected and these amendments were adopted by the shareholders. The names of the seven (7) current Trustees who shall serve until the expiration of their respective terms for which they were elected, and until their successors are duly elected and qualified or until their earlier removal or resignation, and the year in which the current term of each such trustee shall expire are:
Edward S. Civera(Term to expire in 2017)
Benjamin S. Butcher(Term to expire in 2017)
Charles T. Nason(Term to expire in 2018)
Thomas H. Nolan, Jr.(Term to expire in 2018)
Anthony L. Winns(Term to expire in 2018)
William G. Byrnes(Term to expire in 2019)
Paul T. McDermott(Term to expire in 2019)
Except as may be provided by the Board of Trustees in setting the terms of any class or series of Shares, any and all vacancies on the Board of Trustees may be filled by the affirmative vote of a majority of the remaining Trustees in office, even if the remaining Trustees do not constitute a quorum, unless the vacancy occurring through removal has already been filled by the shareholders acting pursuant to the provisions of Section 8.2. Any Trustee elected to fill a vacancy shall serve for the remainder of the full term of the trusteeship in which such vacancy occurred.
APPENDIX B
SHAREHOLDER VOTING AMENDMENT
If Proposal 2 is approved by the shareholders, Section 8.2 of Washington Real Estate Investment Trust’s Articles of Amendment and Restatement would be amended as set forth below. Proposed additions are indicated by underline and proposed deletions are indicated by strike-through.
Section 8.2 Voting Rights. Subject to the provisions of any class or series of Shares then outstanding, the shareholders shall be entitled to vote only on the following matters: (a) election of Trustees as provided in Section 5.2 and the removal of Trustees as provided in Section 5.3; (b) amendment of the Declaration of Trust as provided in Article X; (c) termination of the Trust as provided in Section 12.2; (d) merger or consolidation of the Trust, or the sale or disposition of all or substantially all of the Trust property, as provided in Article XI; and (e) amendment of the Bylaws in accordance with terms thereof; and (f) such other matters with respect to which the Board of Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the shareholders for approval or ratification. Except with respect to the foregoing matters, no action taken by the shareholders at any meeting shall in any way bind the Board of Trustees.
