UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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BOSTON PROPERTIES, INC.
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April 6, 20183, 2020
Dear Fellow Stockholder:
You are cordially invitedOn behalf of the Board of Directors, I am delighted to invite you to attend the 2018 annual meeting2020 Annual Meeting of stockholdersStockholders of Boston Properties, Inc., or BXP. The annual meeting will be held on Wednesday, May 23, 201820, 2020 at 9:00 a.m., PacificEastern Time, at Salesforce Tower, 415 MissionMetropolitan Square, 655 15th Street, Lobby Level, San Francisco, California.NW, 2nd Floor, Washington, DC 20005. However, as discussed in detail in the Notice of Meeting that follows this letter, depending on the status of theCOVID-19 pandemic, we may decide to hold the meeting “virtually.”
The proxy statement, withAs I write this letter, we are quickly approaching the accompanying formal notice50th anniversary of the meeting, describes the matters expected to be acted upon at the meeting. We urge you to review these materials carefully and to use this opportunity to take part in the affairsfounding of Boston Properties, by votingInc. and our 23rd year as a public company listed on the matters describedNYSE. In light of these milestones, I want to share with you some notable achievements in 2019, as well as highlight some key policy changes that we believe will enhance transparency and improve your understanding of Boston Properties’ affairs.
Boston Properties is certainly much larger and more complex today than at any time in its history, as we now operate in five regions on both U.S. coastlines and are developing premier buildings on a scale that is greater than ever before. Despite that growth, your Board is pleased to report that under the leadership of our CEO, Owen Thomas, and President, Doug Linde, the vision and strategy of our founders, Mort Zuckerman and the late Ed Linde, remain the foundation of what we do. That strategy has proven successful. An investment in BXP common stock on the date of our IPO has appreciated by more than 1,346% as of December 31, 2019, far surpassing the 456% return on an equal investment in the S&P 500 Index.
2019 Business Highlights
2019 was an excellent year for Boston Properties, particularly considering that it followed a very strong 2018. Our success is demonstrated by our financial results and other key accomplishments. While the accompanying proxy statement. Followingstatement details your management team’s significant accomplishments in 2019, I want to highlight some that stand out and provide context for the formal portiondiscussion of the meeting,compensation of our named executive officers, or “NEOs”:
26% Total Stockholder Return for 2019 | 11% Y-o-Y Growth in Diluted FFO per Share1 | 9% Y-o-Y Increase in Cash Dividend, 42% over Past Three Years | 7.6 Million Square Feet Leased | |||
6.7% Y-o-Y Growth in Same Property NOI (BXP’s Share)1 | 5.4% Y-o-Y Growth in Same Property NOI – Cash (BXP’s Share)1 | $3.1 Billion BXP’s Share of Estimated Total Investment in Active Development Pipeline | 76% Pre-Leased Development Pipeline (excluding residential) |
| 2020 Proxy Statement |
Environmental, Social and Governance (ESG) Leadership
2019 was another strong year for BXP during which we will providemade substantial progress and maintained our position as an industry leader on environmental, social and governance issues.
› Environmental. Our sustainability strategy is to conduct our business in a brief reportmanner that contributes to positive economic, social and environmental outcomes for our customers, stockholders, employees and the communities we serve. Our experience demonstrates that through our activities, we can contribute to environmental solutions as a positive force while improving our financial performance and becoming a stronger, more purposeful organization in the process. We deliver efficient, healthy and productive workspaces while simultaneously mitigating operational costs and potential external impacts of energy, water, waste, and greenhouse gas emissions. We are also keenly focused on the operationsclimate resilience of our existing portfolio of assets, and we are preparing for long-term climate risks, such as extreme heat, severe storms and sea level rise, by considering climate change scenarios.
Your Board of Directors and CEO are committed to building a company culture in which the commitment to these tenets extends to every region in which we operate, every department and function, and every employee. As a result of these focused efforts, BXP won various industry and other awards in 2019, and we are recognized as a global industry leader in sustainability. Your Board is especially proud of these accomplishments because they are a direct result of our sustained commitment throughout the enterprise over several years. A list of these various awards is on page 5 of the accompanying proxy statement.
› Social. Boston Properties has an established reputation for excellence and integrity, and these core values are inherent in our culture; defining our strategy, achieving our business goals, and contributing to our overall success. Our teams are highly engaged with their local communities in determining how our projects can enhance neighborhoods, improve public amenities and provide high-quality space for working and living in order to positively impact the regions in which we operate. BXP and its employees also make a social impact through charitable giving and volunteerism.
Similarly, BXP is committed to providing an environment for its employees that fosters talent, energy and well-being. We seek an inclusive and diverse workforce that represents the communities we serve, and we design our programs to meet the needs of our workforce and support our employees and their families. The success of our efforts is demonstrated by the long tenure of our employees, nearly 40% of whom have worked at BXP for more than ten years.
› Governance. Your Board of Directors currently consists of eleven individuals with diverse backgrounds who are dedicated to serving the best interests of our stockholders. The accompanying proxy statement contains very detailed information on the composition of our Board and its responsibilities, including a snapshot of our policies on page 1 of the Proxy Summary.
Investor Outreach & Changes in Compensation Policies
At our 2019 annual meeting, our stockholders approved the“Say-on-Pay” resolution to ratify the compensation we paid to our named executive officers. Although the core philosophy and design of our compensation program remained materially consistent with prior years, Institutional Shareholder Services recommended that its clients vote against our 2019Say-on-Pay resolution and the percentage of votes cast in favor of theSay-on-Pay resolution decreased from approximately 91% in 2018 to approximately 67% in 2019.
The results of the vote reflected approval of our executive compensation program as a whole, but the level of support was less than we expected and less than we desire. As a result, your independent directors, led by the Chair of the Compensation Committee and me, engaged directly with ten of our largest institutional investors representing ownership of more than 40% of the outstanding shares of BXP common stock to solicit feedback on our executive compensation program and our directorscorporate governance policies generally and management teamto better understand their individual concerns.
In addition to the feedback from investors, the Compensation Committee evaluated the advice received from its new independent consultant, Frederic W. Cook & Co., Inc. on the reasonableness of the Company’s executive compensation levels in comparison with those of other similarly situated companies and recommendations for the components and amounts of compensation paid to our top executive officers.
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The “Compensation Discussion and Analysis” section of the accompanying proxy statement includes a discussion of the feedback we received from investors, as well as the advice received from FW Cook. Each contributed to the Compensation Committee taking policy actions, and I want to highlight the following key changes:
› New Annual Cash Bonus Program – The Compensation Committee established a new 2020 Annual Incentive Plan. Under this plan, beginning in 2020, annual cash bonuses paid to our executive officers will be availabledirectly linked to answer appropriate questions from stockholders.their performance against goals in three, equally-weighted categories:
Your vote is important. Your proxy or voting instruction card
FFO per Share
Leasing
Business/Individual Goals
Some of our investors expressed a desire for more objectivity and structure in BXP’s annual cash bonus program, including specific weightings ascribed to each measure and transparent disclosure of goals and results. The new bonus plan addresses investors’ feedback on the discretionary nature of BXP’s traditional bonus program, reduces the number of performance goals and includes specific weightings for each measure.
› Target and Maximum Cash Bonus Opportunities – Beginning in 2020, all executive officers have target and maximum annual cash bonus opportunities. Amounts actually earned may range from zero (0) to 150% of target, depending on performance versus theirpre-established goals in each category. The Compensation Committee incorporated the target and maximum bonus opportunities in the new bonus plan in response to investors expressing a preference for a clearly defined ranges of bonus opportunities.
› Allocation to Performance-based Equity Awards – The Compensation Committee increased the percentage of equity awards that are granted to our CEO in the form of performance-based equity awards from 50% to 55%, so the allocation between performance-based and time-based equity awards is now55%-45%. (The allocation for all other NEOs remains50%-50%.) In addition, the Compensation Committee increased the allocation of total compensation to long-term equity compensation and decreased the allocation to short-term cash compensation to increase alignment with stockholders and focus on long-term performance. As a result, performance-based equity awards for all NEOs represent a greater percentage of total direct compensation than they did in 2018.
We trust that you will view these changes as a demonstration of the commitment of Boston Properties’ Board to engage with you and to proactively respond to your concerns.
*****
The accompanying proxy statement contains a great deal of other important information regardingabout Boston Properties, and we hope you will take the several waystime to vote your shares. We encourageread it. Whether or not you to vote as soon as possible, even if you planare able to attend the meeting. You may vote over the internet, by telephone or by mail.
Thankannual meeting, we welcome your participation in our affairs and thank you for your continued support of Boston Properties.support.
Sincerely,
Owen D. Thomas
Chief Executive OfficerJoel I. Klein
Chairman of the Board
1 | For disclosures required by Regulation G, refer to (1) pages 95 through 97 of our 2019 Annual Report on Form10-K for FFO and diluted FFO per share and (2) Appendix A to the accompanying proxy statement for BXP’s Share of Same Property NOI and NOI – Cash. |
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Notice of 2018 Annual Meeting of StockholdersNOTICE OF 2020 ANNUAL
MEETING OF STOCKHOLDERS
DATE AND TIME | Wednesday, May | |||
20, 2020, at 9:00 a.m., | ||||
LOCATION | ||||
RECORD DATE |
*Depending on the status of health concerns about the coronavirus, orCOVID-19, we may decide to hold the annual meeting by live audio webcast instead of holding the annual meeting in person at Metropolitan Square. The Company will publicly announce a decision to hold the annual meeting, at the same date and time, solely by audio webcast in a press release available athttp://investors.bxp.com/press-releases as soon as practicable before the annual meeting. In the event the annual meeting is not held at Metropolitan Square, you or your proxyholder may participate, vote and examine our stockholder list by visitingwww.virtualshareholdermeeting.com/BXP2020 and using your16-digit control number.
Since becoming a public company in 1997, we have always held our annual meetings in person, and it remains our intention to do so under normal circumstances.
ITEMS OF BUSINESS
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To elect the eleven (11) nominees for director named in the proxy statement, each to serve for aone-year term and until their respective successors are duly elected and qualified. |
2. | To hold anon-binding, advisory vote on named executive officer compensation. |
3. | To ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, |
4. | To consider and act upon any other matters that are properly brought by or at the direction of the Board of Directors before the annual meeting and at any adjournments or postponements thereof. | |||
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PROXY VOTING
Whether or not you plan to attend the meeting and vote your shares of common stock in person, we urge you to vote your shares as instructed in the proxy statement. If you received a copy of the proxy card by mail, you may sign, date and mail the proxy card in the postage-paid envelope provided.
If your shares of common stock are held by a broker, bank or other nominee, please follow the instructions you receive from your broker, bank or other nominee to have your shares of common stock voted.
Any proxy may be revoked at any time prior to its exercise at the annual meeting.
By Order of the Board of Directors,
Frank D. Burt, ESQ.
Secretary
April 3, 2020
Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be Held on May 23, 2018.20, 2020.The proxy statement and our 20172019 annual report to stockholders are available at www.edocumentview.com/bxp.atwww.proxyvote.com.
By Order of the Board of Directors
FRANK D. BURT, ESQ.
Secretary
April 6, 2018
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| 2020 Proxy Statement |
› | PROXY SUMMARY |
This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
2020 ANNUAL MEETING INFORMATION
Date and Time | Location | Record Date | ||
Wednesday, May 20, 2020 9:00 a.m., Eastern Time | Metropolitan Square 655 15th Street, NW, 2nd Floor Washington, DC 20005 | March 25, 2020 |
VOTING MATTERS AND RECOMMENDATIONS
Voting Matter | Board’s Voting Recommendation | Page Reference for more Information | ||||
Proposal 1 | Election of Eleven (11) Directors | ✓ FOR each nominee | 7 | |||
Proposal 2 | Non-binding, Advisory Vote on Named Executive | ✓ FOR | 83 | |||
Officer Compensation | ||||||
Proposal 3 | Ratification of Appointment of Independent | ✓ FOR | 84 | |||
Registered Public Accounting Firm |
GOVERNANCE AND COMPENSATION POLICIES AND KEY DATA
Board Leadership | Stockholder Rights | |
• Mr. Klein serves as our independent, non-executive Chairman of the Board | • Incorporated in Delaware; the Maryland Unsolicited Takeovers Act does not apply to us • Proxy Access By-law right • Annual election of all directors • Majority voting standard in uncontested director elections • Stockholder right to amend By-laws • No Stockholder Rights Plan (or “poison pill”) • Disclosure of Policy on Company Political Spending | |
Director Composition and Independence | ||
• Eleven (11) directors • Four directors are women and one director is African-American • 82% independent | ||
Director Qualifications and Policies | Compensation | |
• Retirement age: 75-year maximum age limit at time of nomination • Regular executive sessions of independent directors • All directors and officers are subject to a Code of Business Conduct and Ethics • All directors attended 75% or more of Board and committee meetings in 2019 • Annual self-evaluation for the Board and each committee, and bi-annual interviews of individual directors by our Chairman of the Board; process overseen by our Nominating and Corporate Governance Committee | • Stock ownership requirements for executives (for CEO, 6x base salary) • Stock ownership requirements for directors (5x annual retainer) • Anti-hedging, anti-pledging and anti-short-sale policies • “Double-Trigger” vesting for time-based equity awards • Compensation Clawback Policy • Policy against tax gross-up provisions | |
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DIRECTOR SUCCESSION
Led by our Nominating and Corporate Governance Committee, our Board of Directors remains focused on ensuring a smooth transition if and when directors decide to retire or otherwise leave our Board and that the composition of our Board is systematically refreshed so that, taken as a whole, the Board has the desired mix of skills, experience, reputation and diversity relevant to our strategic direction and operating environment, as well as the knowledge, ability and independence to continue to deliver a high standard of governance expected by investors. For more information on this process, see“Corporate Governance Principles and Board Matters – The Board of Directors – Director Succession Planning” beginning on page 1 of the proxy statement.
In our proxy statement for our 2016 annual meeting of stockholders, we stated that our Board of Directors anticipates that changes to its composition would likely occur gradually over several years. Consistent with this statement, in 2016 our Board nominated and our stockholders elected two new directors (Ms. Karen E. Dykstra and Mr. Bruce W. Duncan). Continuing with this process, our Board of Directors is delighted to nominate a new candidate – former United States Senator Kelly A. Ayotte – for election to our Board of Directors at the 2018 annual meeting of stockholders. Alan J. Patricof, a director of Boston Properties since 1997, is not standing forre-election. The Board of Directors extends its gratitude and appreciation to him for his dedication and countless contributions to Boston Properties.
Senator Ayotte brings significant legal experience and experience in government and public affairs, as well as leadership and strategic planning skills, having represented New Hampshire in the United States Senate and, prior to her election to the Senate, as New Hampshire’s first female Attorney General. Senator Ayotte currently serves on the Board of Directors of Caterpillar Inc., a global manufacturer of construction, mining and industrial equipment, and News Corporation, a global diversified media and information services company. She also serves on the advisory boards of Microsoft Corporation, Blink Health LLC, Chubb Insurance, Revision Military and Cirtronics Corporation.
For more information on Senator Ayotte, see“Proposal 1: Election of Directors – Information Regarding the Nominees and Executive Officers” beginning on page 15 of the proxy statement.
BOARD NOMINEES
Following the recommendation of the Nominating and Corporate Governance (“NCG”) Committee, our Board of Directors has nominated the following eleven (11) candidates for election as directors at the 20182020 annual meeting of stockholders.
Committee Membership | ||||||||||||||||||||||||||||
Name and Principal Occupation | Age | Independent | Director Since | Audit | Compensation | Nominating and Corporate Governance | Investment | |||||||||||||||||||||
Kelly A. Ayotte | ||||||||||||||||||||||||||||
Former United States Senator for the State of New Hampshire | 49 | ✓ | — | |||||||||||||||||||||||||
Bruce W. Duncan(1) | ||||||||||||||||||||||||||||
Chairman and former Chief Executive Officer of First Industrial Realty Trust, Inc. | 66 | ✓ | 2016 | ● | ||||||||||||||||||||||||
Karen E. Dykstra(1) | ||||||||||||||||||||||||||||
Former Chief Financial and Administrative Officer of AOL, Inc. | 59 | ✓ | 2016 | ● | ||||||||||||||||||||||||
Carol B. Einiger | ||||||||||||||||||||||||||||
Senior Advisor, Roundtable Investment Partners LLC | 68 | ✓ | 2004 | Chair | ||||||||||||||||||||||||
Dr. Jacob A. Frenkel | ||||||||||||||||||||||||||||
Chairman of JPMorgan Chase International | 75 | ✓ | 2010 | Chair | ||||||||||||||||||||||||
Joel I. Klein(2) | ||||||||||||||||||||||||||||
Chief Policy and Strategy Officer of Oscar Insurance Corporation | 71 | ✓ | 2013 | ● | ||||||||||||||||||||||||
Douglas T. Linde | ||||||||||||||||||||||||||||
President of Boston Properties, Inc. | 54 | 2010 | ● | |||||||||||||||||||||||||
Matthew J. Lustig | ||||||||||||||||||||||||||||
Head of North America Investment Banking and Head of Real Estate & Lodging at Lazard Fréres & Co. | 57 | ✓ | 2011 | ● | ||||||||||||||||||||||||
Owen D. Thomas | ||||||||||||||||||||||||||||
Chief Executive Officer of Boston Properties, Inc. | 56 | 2013 | ● | |||||||||||||||||||||||||
Martin Turchin | ||||||||||||||||||||||||||||
Non-Executive Vice Chairman of CBRE Group, Inc. | 76 | ✓ | 1997 | ● | ||||||||||||||||||||||||
David A. Twardock(1) | ||||||||||||||||||||||||||||
Former President of Prudential Mortgage Capital Company, LLC | 60 | ✓ | 2003 | Chair | ● |
Name | Principal Occupation | Age(1) | Director Since | Independent | Current Committee Memberships | |||||
Joel I. Klein Chairman of the Board | Chief Policy and Strategy Officer of Oscar Health Corporation | 73 | 2013 | Yes | (2) | |||||
Kelly A. Ayotte | Former United States Senator for the State of New Hampshire | 51 | 2018 | Yes | Compensation; NCG | |||||
Bruce W. Duncan(3) | Chairman and former Chief Executive Officer of First Industrial Realty Trust, Inc. | 68 | 2016 | Yes | Compensation (Chair); NCG | |||||
Karen E. Dykstra(3) | Former Chief Financial and Administrative Officer of AOL, Inc. | 61 | 2016 | Yes | Audit | |||||
Carol B. Einiger | President of Post Rock Advisors, LLC | 70 | 2004 | Yes | Compensation | |||||
Diane J. Hoskins | Chair andCo-Chief Executive Officer of M. Arthur Gensler Jr. & Associates, Inc. | 62 | 2019 | Yes | NCG | |||||
Douglas T. Linde | President of Boston Properties, Inc. | 56 | 2010 | No | ||||||
Matthew J. Lustig | Chairman of North America Investment Banking and Head of Real Estate & Lodging at Lazard Fréres & Co. | 59 | 2011 | Yes | NCG (Chair) | |||||
Owen D. Thomas | Chief Executive Officer of Boston Properties, Inc. | 58 | 2013 | No | ||||||
David A. Twardock(3) | Former President of Prudential Mortgage Capital Company, LLC | 63 | 2003 | Yes | Audit (Chair); Compensation | |||||
William H. Walton, III | Managing Member &Co-Founder of Rockpoint Group, LLC | 68 | 2019 | Yes | Audit |
(1) | Age as of May 20, 2020, the date of the annual meeting. |
(2) | Mr. Klein serves as our independent,non-executive Chairman of the Board and as anex officio member of each of the Audit, Compensation and NCG Committees. |
(3) | Our Board of Directors determined that each of Ms. Dykstra and Mr. Twardock qualifies as an “audit committee financial expert” as that term is defined in the rules of the |
2 | | 2020 Proxy Statement |
› | PROXY SUMMARY |
SNAPSHOT OF 2020 BOARD COMPOSITION
NOMINEES
Presented below is a snapshot of the expected composition of our Board of Directors immediately following the 20182020 annual meeting, assuming the election of the eleven (11) nominees named in the proxy statement. Our Board of Directors believes that, collectively, the nominees exhibit an effective mix of qualifications, experience and diversity. For comparison purposes, we have also presented comparable metrics for the constituents of the S&P 500 Index, of which Boston Properties is a member. (DataData for the S&P 500 Index is based on theSpencer Stuart Board Index2017.)2019.
BXP %The following summarizes the qualifications and experience of independent directors: 82% S&P 500% of independent directors: 85% S&P 500 average# of independent directors: 9.2 S&P 500 average # female directors: 2.4 BXP #female directors: 3 BXP average age of all directors: 63.5 years BXP average age of independent directors: 65.2 years S&P 500 average age of independent directors: 63.1 years BXP average tenure: 8.0 years S&P 500 average tenure: 8.7 years Independence Independent Other directors Gender Diversity Male Female Age #the eleven (11) nominees for election as directors. For additional information, see “Proposal 1: Election of Directors 40s 50s 60s 70s Tenure #– Nominees for Election” beginning on page 9 of Directors 0-5 years 5-10 years >10 years 5 4 3 2 1 0
GOVERNANCE AND COMPENSATION POLICIESthe proxy statement.
Below presents a snapshot of certain key governance and compensation policies.
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› | PROXY SUMMARY |
SUSTAINABILITY
The BXP sustainability strategy is to conduct our business — the development and operation of new and existing buildings — in a manner that contributes to positive economic, social and environmental outcomes for our customers, shareholders, employees and the communities we serve. Our investment philosophy is shaped by our core strategy of long-term ownership and our commitment to our communities and the centers of commerce and civic life that make them thrive. We are focused on developing and maintaining healthy, high-performance buildings, while simultaneously mitigating operational costs and the potential external impacts of energy, water, waste, greenhouse gas emissions and climate change. To that end, we have publicly adopted long-term energy, emissions, water and waste goals that establish aggressive reduction targets and have been aligned with the United Nations Sustainable Development Goals. BXP is a corporate member of the U.S. Green Building Council® (“USGBC”) and has a long history of owning, developing and operating properties that are certified under USGBC’s Leadership in Energy and Environmental Design™ (“LEED®”) rating system. In addition, we have been an active participant in the green bond market since 2018, which provides access to sustainability-focused investors interested in the positive environmental externalities of our business activities. BXP and its employees also make a social impact through charitable giving, volunteerism, public-realm investments and diversity and inclusion. Through these efforts, we demonstrate that operating and developing commercial real estate can be conducted with a conscious regard for the environment and society while mutually benefiting our stakeholders.
› INDUSTRY LEADERSHIP
We are recognized as an industry leader in sustainability as demonstrated by the following awards and achievements.
Achievements
› | PROXY SUMMARY |
Awards and Ratings
In 2018 and 2019, BXP marketed and issued an aggregate of $1.85 billion of green bonds in two separate bond offerings and subsequently provided impact reporting for the first offering in 2019. Green bonds restrict the use of proceeds to eligible green projects. Eligible Green Projects are defined as: (1) building developments or redevelopments; (2) renovations in existing buildings; and (3) tenant improvement projects, in each case, that have received, or are expected to receive, in the three years prior to the issuance of the notes or during the term of the notes, a LEED Silver, Gold or Platinum certification (or environmentally equivalent successor standards). The definition of Eligible Green Projects includes the Salesforce Tower development project, which has received LEED Platinum certification, and was the project associated with BXP’s inaugural green bond offering.
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› | PROXY SUMMARY |
› CLIMATE RESILIENCE
We are focused on climate preparedness and resiliency in advancement of our sustainability strategy. As a long-term owner and active manager of real estate assets in operation and under development, we strive to obtain adaptive capacity by continuing to proactively implement measures and planning and decision-making processes to protect our investments by improving resilience. We are preparing for long-term climate risk by considering climate change scenarios and will continue to assess climate change vulnerabilities resulting from potential future climate scenarios and sea level rise. Event-driven (acute) and longer-term (chronic) physical risks that may result from climate change could have a material adverse effect on our properties, operations and business. Management’s role in assessing and managing these climate-related risks and initiatives is spread across multiple teams across our organization, including our executive leadership and our Sustainability, Risk Management, Development, Construction and Property Management departments. Climate resilience measures include training and implementation of emergency response plans and the engagement of our executives and our Board of Directors on climate change and other environmental, social and governance (“ESG”) aspects.
› PUBLIC SUSTAINABILITY GOALS AND PROGRESS
Our sustainability goals establish reduction targets for energy, greenhouse gas emissions, water consumption and waste. In 2016, we achieved our first round of energy, emissions and water targets three years early. By resetting company-wide goals, we raise stakeholder awareness and make best efforts to drive continuous year-over-year,like-for-like key performance indicator improvement. We have adopted goals with the following specific time frames, metrics and targets below a 2008 baseline:(1)
(1) | Full 2019 calendar year energy and water data assured by a third party is not yet available. 2018 is the most recent year for which complete energy and water data is available and assured by a third party. |
We are committed to transparent reporting of ESG sustainability indicators. Boston Properties publishes an annual sustainability report that is aligned with the Global Reporting Initiative (“GRI”) reporting framework. More detailed sustainability information, including our strategy, key performance indicators, annuallike-for-like comparisons, achievements and historical sustainability reports are available on our website athttp://www.bxp.com under the heading “Sustainability.” Except for the documents specifically incorporated by reference into our Annual Report on Form10-K, information contained on our website or that can be accessed through our website is not incorporated by reference into our Annual Report on Form10-K.
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1› | PROPOSAL 1: ELECTION OF DIRECTORS |
PROXY STATEMENT
This proxy statement is being made available to stockholders of Boston Properties, Inc. (“we,” “us,” “our,” “Boston Properties” or the “Company”) on or about April 6, 20183, 2020 via the Internet or by delivering printed copies by mail, and is furnished in connection with the solicitation of proxies by the Board of Directors of Boston Properties, Inc. (our “Board” or our “Board of Directors”) for use at our 20182020 annual meeting of stockholders to be held on Wednesday, May 23, 201820, 2020 at 9:00 a.m., PacificEastern Time, at Salesforce Tower, 415 MissionMetropolitan Square, 655 15th Street, Lobby Level, San Francisco, California,NW, 2nd Floor, Washington, DC 20005, and at any adjournments or postponements thereof.
Depending on the status of health concerns about the coronavirus, orCORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERSCOVID-19, we may decide to hold the annual meeting by live audio webcast instead of holding the meeting in person at Metropolitan Square. The Company will publicly announce a decision to hold the annual meeting, at the same date and time, solely by audio webcast in a press release available athttp://investors.bxp.com/press-releases as soon as practicable before the annual meeting. In the event the annual meeting is not held at Metropolitan Square, you or your proxyholder may participate, vote and examine our stockholder list by visitingwww.virtualshareholdermeeting.com/BXP2020 and using your16-digit control number.
Since becoming a public company in 1997, we have always held our annual meeting in person, and it remains our intention to do so under normal circumstances.
ELECTION OF DIRECTORS
Composition of the Board of Directors
Boston Properties is currently governed by an eleven-member Board of Directors. The current members of our Board of Directors are Kelly A. Ayotte, Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Dr. Jacob A. Frenkel,Diane J. Hoskins, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Alan J. Patricof, Owen D. Thomas, Martin Turchin and David A. Twardock.Twardock and William H. Walton, III. At the 20182020 annual meeting of stockholders, directors will be elected to hold office for aone-year term expiring at the 20192021 annual meeting of stockholders orstockholders. Directors shall hold office until his or her successor istheir successors are duly elected and qualified, or until his or hertheir earlier resignation or removal. Any director appointed to our Board of Directors to fill a vacancy will hold office for a term expiring at the next annual meeting of stockholders following such appointment.
Following the recommendation of the NCG Committee, our Board of Directors nominated all directors currently serving forMeetingsre-election. In making its recommendations, the NCG Committee considered a number of factors, including its criteria for Board membership, which include the minimum qualifications that must be possessed by a director candidate in order to be nominated for a position on our Board. Our Board of Directors anticipates that, if elected, the nominees will serve as directors. However, if any person nominated by our Board of Directors is unable to serve or for good cause will not serve, the proxies will be voted for the election of such other person as our Board of Directors may recommend.
VOTE REQUIRED AND MAJORITY VOTING STANDARD
OurBy-laws provide for a majority voting standard. This means that, in an uncontested election, nominees for director are elected if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. The majority voting standard would not apply in contested elections, which, generally, will include any situation in which Boston Properties receives a notice that a stockholder has nominated a person for election to our Board of Directors at a meeting of stockholders that is not withdrawn on or before the tenth day before Boston Properties first mails its notice for such meeting to the stockholders.
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The majority voting standard will apply to the election of directors at the 2020 annual meeting of stockholders. Accordingly, nominees for director will be elected if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. Brokernon-votes, if any, and abstentions will not be treated as votes cast.
Our Board of Directors met seven times during 2017. Each incumbenthas also adopted a resignation policy, included in our Corporate Governance Guidelines, under which a director attended at least 75%who fails to receive the required number of votes forre-election will tender his or her resignation to our Board of Directors for its consideration. The NCG Committee will then act on an expedited basis to determine whether it is advisable to accept the director’s resignation and will submit the recommendation for prompt consideration by our Board of Directors. Our Board of Directors will act on the tendered resignation within 90 days following certification of the aggregatestockholder vote and will promptly and publicly disclose its decision. The director whose resignation is under consideration will abstain from participating in any decision regarding his or her resignation. If the resignation is not accepted, the director will continue to serve until the next annual meeting of (1)stockholders and until the total numberdirector’s successor is duly elected and qualified or until the director’s earlier resignation or removal. The NCG Committee and our Board of meetingsDirectors may consider any factors they deem relevant in deciding whether to accept a director’s resignation.
✔ | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFOR EACH OF ITS NOMINEES: KELLY A. |
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The following biographical descriptions set forth certain information with respect to the nominees for election as directors at the annual meeting, based on information furnished to Boston Properties by each nominee, including the specific experience, qualifications, attributes and skills that led to the conclusion by our Board of Directors that such person should serve as a director of Boston Properties.
JOEL I. KLEIN Chief Policy and Strategy Officer of Oscar Health Corporation | Qualifications: Mr. Klein has worked for more than 40 years in private industry and government during which time he has gained significant experience in senior policy making and executive roles, as well as a broad range of legal and financial matters. Professional Background: • Chief Policy and Strategy Officer of Oscar Health Corporation, a health insurance company • Director of News Corporation since January 2011 • Executive Vice President, Office of the Chairman of News Corporation from June 2003 to December 2015 and Chief Executive Officer of Amplify, the education division of News Corporation, from January 2011 to December 2015 • Chancellor of the New York City Department of Education from 2002 through 2010, where Mr. Klein oversaw a system of over 1,600 schools with 1.1 million students, 136,000 employees and a $22 billion budget • U.S. Chairman and Chief Executive Officer of Bertelsmann, Inc. and Chief U.S. Liaison Officer to Bertelsmann AG, a media company, from 2001 to 2002 • Various roles with the Clinton administration, including Assistant U.S. Attorney General in charge of the Antitrust Division of the U.S. Department of Justice from 1997 to 2000 and Deputy White House Counsel to President Clinton from 1993 to 1995. Mr. Klein entered the Clinton administration after 20 years of public and private legal work in Washington, DC | Other Leadership Experience, Community Involvement and Education: • Member of the Boards of The Foundation for Excellence in Education (ExcelinEd) and StudentsFirstNY • Member of the Advisory Boards of the Zuckerman Mind Brain Behavior Institute and Columbia College • Received a BA magna cum laude from Columbia University and a JD magna cum laude from Harvard Law School. Mr. Klein has also received honorary degrees from ten colleges and universities | ||||
Director since: January 2013 Age:73 Independent Chairman of the Board Board Committees: •ex officio member of all committees Other Public Company Boards: • Current: News Corporation • Former (past 5 years): None |
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SENATOR KELLY A. AYOTTE Former U.S. Senator for the State of New Hampshire | Qualifications: Senator Ayotte has significant legal experience and experience in government and public affairs, as well as leadership and strategic planning skills. Professional Business Experience: • Represented New Hampshire in the United States Senate from 2011 to 2016; chaired the Armed Services Subcommittee on Readiness and the Commerce Subcommittee on Aviation Operations; and served on the Budget, Homeland Security and Governmental Affairs, Small Business and Entrepreneurship, and Aging Committees • New Hampshire’s first female Attorney General from 2004 to 2009 appointed by Republican Governor Craig Benson and reappointed twice by Democratic Governor John Lynch • Previously Deputy Attorney General, Chief of the Homicide Prosecution Unit and Legal Counsel to Governor Craig Benson • Former associate at the McLane Middleton law firm and law clerk to the New Hampshire Supreme Court • Director of The Blackstone Group, Inc., Caterpillar Inc. and News Corporation • Director of Blink Health LLC and BAE Systems, Inc., each a private company • Former director of Bloom Energy Corporation from 2017 to 2019 • Member of advisory boards of Microsoft Corporation, Chubb Insurance and Cirtronics Corporation | Other Leadership Experience, Community Involvement and Education: • Senior Advisor for Citizens for Responsible Energy Solutions • Member ofnon-profit boards of the One Campaign, the International Republican Institute, the McCain Institute, Swim with a Mission, Winning for Women and Veterans Count of New Hampshire • Member of the Aspen Institute’s Economic Strategy • Member of Board of Advisors for the Center on Military and Political Power at the Foundation for Defense of Democracies • Co-chair of the Center for Strategic and International Study’s Commission on Health Security • Co-chair of the Center for a New American Security’s Digital Freedom Forum • Graduated with honors from the Pennsylvania State University and received a JD from the Villanova University School of Law | ||||
Director since:May 2018 Age:51 Independent Board Committees: • Compensation • NCG Other Public Company Boards: • Current: The Blackstone Group, Inc., Caterpillar Inc., News Corporation • Former (past 5 years): Bloom Energy Corporation |
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BRUCE W. DUNCAN Chairman of the Board of Directors of First Industrial Realty Trust, Inc. | Qualifications: Mr. Duncan has more than 30 years of diverse real estate management and investment experience, including as a chief executive officer and a director of other publicly traded companies. Professional Business Experience: • Chairman of the Board of Directors of First Industrial Realty Trust, Inc. (“First Industrial”), an industrial real estate investment trust (“REIT”), since January 2016, and a director of First Industrial since January 2009; President and Chief Executive Officer of First Industrial from January 2009 until he stepped down as President in September 2016 and retired as Chief Executive Officer in November 2016 • Senior advisor to Kohlberg Kravis Roberts & Co. (“KKR”), a global investment firm, since November 2018; previously senior advisor to KKR from July 2008 to January 2009 • Former Chairman of the Board of Directors of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), a leading worldwide hotel and leisure company, from May 2005 until its acquisition by Marriott International, Inc. in September 2016; director of Starwood from 1999 to September 2016; interim Chief Executive Officer of Starwood from April 2007 to September 2007 • Trustee of Starwood Hotels & Resorts, a REIT and former subsidiary of Starwood, from 1995 to 2006 • Director of Marriott International, Inc., the world’s largest hotel company, since September 2016, and T. Rowe Price Mutual Funds since September 2013 • Private investor from January 2006 to January 2009 • Various positions at Equity Residential, one of the largest publicly traded apartment REITs in the United States, from March 2002 to December 2005, including Chief Executive Officer and Trustee from May 2005 to December 2005, President, Chief Executive Officer and Trustee from January 2003 to May 2005, and President and Trustee from March 2002 to December 2002 • Former director of The Rouse Company, a diversified commercial real estate firm • Chairman, President and Chief Executive Officer of Cadillac Fairview Corporation, one of North America’s largest owners and developers of retail and office properties, from December 1995 to March 2000 | Other Leadership Experience, Community Involvement and Education: • Life Trustee of Rush University Medical Center in Chicago • Former member of the Advisory Board of Governors of the National Association of Real Estate Investment Trusts (“Nareit”) and the Executive Committees of the Board of the Canadian Institute for Public Real Estate Companies (CIPREC) and the National Multi-Housing Council (NMHC) • Former trustee of the International Council of Shopping Centers (ICSC) • Received a BA in Economics from Kenyon College and an MBA in Finance from the University of Chicago | ||||
Director since:May 2016 Age:68 Independent Board Committees: • Compensation (Chair) • NCG Other Public Company Boards: • Current: First Industrial Realty Trust, Inc., Marriott International, Inc. • Former (past 5 years): Starwood Hotels & Resorts Worldwide, Inc. |
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KAREN E. DYKSTRA Former Chief Financial and Administrative Officer of AOL, Inc. | Qualifications: Ms. Dykstra has extensive strategic, management, financial, accounting and oversight experience, particularly with companies in the technology sector. Professional Business Experience: • Chief Financial and Administrative Officer of AOL, Inc., a global media technology company, from November 2013 to July 2015; Chief Financial Officer of AOL, Inc. from September 2012 to November 2013 • Partner of Plainfield Asset Management LLC (“Plainfield”) from January 2007 to December 2010 • Chief Operating Officer and Chief Financial Officer of Plainfield Direct Inc., Plainfield’s business development company, from May 2006 to 2010 and a director from 2007 to 2010 • Various positions with Automatic Data Processing, Inc. for over 25 years, including serving most recently as Chief Financial Officer from January 2003 to May 2006, and as Vice President – Finance, Corporate Controller • Director of Sirius Computer Solutions, a private company • Director of Gartner, Inc. since 2007 and VMware, Inc. since March 2016 • Former director of Crane Co. from 2004 to 2012 and AOL, Inc. from 2009 to 2012 | Education: • Received a BA in Accounting from Rider University and an MBA from Fairleigh Dickinson University | ||||
Director since:May 2016 Age:61 Independent Board Committees: • Audit Other Public Company Boards: • Current: Gartner, Inc., VMware, Inc. • Former (past 5 years): None |
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CAROL B. EINIGER President of Post Rock Advisors, LLC | Qualifications: Ms. Einiger has more than 40 years of experience as an investment banker and investment advisor, during which time she has gained significant expertise in the operation of public and private debt and equity capital markets and the evaluation of investment opportunities. Professional Background: • President of Post Rock Advisors, LLC, a private investment firm, since July 2018; founder and President of Post Rock Advisors, LLC from 2005 to 2016 • Senior Advisor of Roundtable Investment Partners LLC, a registered investment advisory firm, from January 2017 to June 2018 • Chief Investment Officer of The Rockefeller University, where Ms. Einiger was responsible for the management of the University’s endowment, from 1996 to 2005 • Chief Financial Officer and then Acting President of the Edna McConnell Clark Foundation from 1992 to 1996 • Managing Director at Wasserstein Perella & Co. from 1989 to 1992 • Visiting Professor andExecutive-in-Residence at Columbia Business School from 1988 to 1989 • Various positions at The First Boston Corporation from 1973 to 1988, becoming Managing Director and Head of the Capital Markets Department • Various positions at Goldman, Sachs & Co. from 1971 to 1972 | Other Leadership Experience, Community Involvement and Education: • Director, member and former Chair of the Investment Committee ofUJA-Federation of New York • Member of the Investment Committee of the JPB Foundation and the Board of Overseers of Columbia Business School • Former member of the Boards of Trustees and Investment Committees of the University of Pennsylvania, the Lasker Foundation, the Horace Mann School • Former member of the Advisory Board of Blackstone Alternative Asset Management • Former Vice Chair of the Investment Committee of The Museum of Modern Art • Former Director of Credit Suisse First Boston (USA) and The New York Stem Cell Foundation • Recipient of numerous awards, including the Alumni Award of Merit of the University of Pennsylvania, the Columbia Business School Distinguished Alumna Award, the AJC National Human Relations Award, the Anti-Defamation League Woman of Achievement Award and the Catalyst Award for Corporate Leadership • Received a BA from the University of Pennsylvania and an MBA with honors from Columbia Business School | ||||
Director since:May 2004 Age:70 Independent Board Committees: • Compensation Other Public Company Boards: • Current: None • Former (past 5 years): None |
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DIANE J. HOSKINS Co-CEO and Chair of M. Arthur Gensler Jr. & Associates, Inc. | Qualifications: Ms. Hoskins has more than 30 years of architecture, design, real estate and business experience, including as a chief executive officer of a global brand. During this time, she has gained extensive leadership, strategic planning, and organizational development experience, as well as a deep understanding of markets and clients, including their current and future space needs and insight into how companies envision their work spaces of the future. Professional Background: • Co-CEO of M. Arthur Gensler Jr. & Associates, Inc. (“Gensler”), the world’s largest architecture, design, and planning firm since 2005, and Chair of the Gensler Board of Directors since 2018, where Ms. Hoskins has broad responsibility for managing Gensler, overseeing the company’s global platform and itsday-to-day operations, which spans over 6,000 employees networked across 48 offices in the Americas, Europe, Asia, and the Middle East • Various positions at Gensler since 1995, including Southeast Regional Managing Principal and Managing Director of the Washington, DC office • Founded the Gensler Research Institute to generate new knowledge and develop a deeper understanding of the connection between design, business, and the human experience • Senior Vice President of Epstein Architecture and Engineering from 1990 to 1994 • Development Analyst at Olympia & York from 1987 to 1990 • Architect Designer at Gensler from 1983 to 1985 • Architect at Skidmore Owings & Merrill from 1980 to 1983 | Other Leadership Experience, Community Involvement and Education: • Member of the World Economic Forum’s Global Future Council on Cities & Urbanization and the CEO Initiative by Fortune and Time • Fellow of the American Institute of Architects and member of several organizations, including the D.C. Board of Trade and the Economic Club of Washington, DC • Serves on the Visiting Committee of the School of Architecture at the Massachusetts Institute of Technology (MIT) and the Board of Advisors of the University of California, Los Angeles (UCLA) Anderson School of Management • Ms. Hoskins has been honored by several organizations for her work, including the Spirit of Life Award from City of Hope and the Outstanding Impact Award from the Council of Real Estate Women • Inducted into the Washington Business Hall of Fame in 2016, and, along with herCo-CEO, were ranked on the Business Insider’s 100 “Creators” list, a who’s who of the world’s 100 top creative visionaries • Ms. Hoskins is sought after by the media to share her expertise in many top tier media outlets, including The New York Times, Harvard Business Review, Fortune, Financial Times, Bloomberg TV, and global architecture and design trade publications • Frequent speaker at premier conferences, including the Bloomberg Business/CEO Summit, the Economist Human Potential Conference, and the Wall Street Journal Future of Cities Conference; was a featured panelist at the UN Climate Summit in the fall of 2019 • Graduated from MIT and holds an MBA from the Anderson Graduate School of Management at UCLA | ||||
Director since: May 2019 Age:62 Independent Board Committees: • NCG Other Public Company Boards: • Current: None • Former (past 5 years): None |
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DOUGLAS T. LINDE President of Boston Properties, Inc. | Qualifications: Mr. Linde has more than 30 years of experience in the real estate industry, including as our President and former Chief Financial Officer, during which time he gained extensive knowledge of the real estate industry, capital markets and real estate finance, as well as substantial experience in transactional, operational and accounting matters. Professional Background: • President of Boston Properties, Inc. since May 2007 • Mr. Linde joined Boston Properties in January 1997 as Vice President of Acquisitions and New Business to help identify and execute acquisitions and to develop new business opportunities and served as Senior Vice President for Financial and Capital Markets from October 1998 to January 2005, Chief Financial Officer and Treasurer from September 2000 to November 2007, and Executive Vice President from January 2005 to May 2007 • President of Capstone Investments, a Boston real estate investment company, from 1993 to 1997 • Project Manager and Assistant to the Chief Financial Officer of Wright Runstad and Company, a private real estate developer in Seattle, WA, from 1989 to 1993 • Began his career in the real estate industry with Salomon Brothers’ Real Estate Finance Group | Other Leadership Experience, Community Involvement and Education: • Trustee of the Beth Israel Lahey Health Board of Trustees • Director Emeritus of the Board of Directors of Beth Israel Deaconess Medical Center (“BIDMC”) andco-chair of the BIDMC capital campaign • Member of the Real Estate Roundtable • Director of the Boston Municipal Research Bureau and Jobs for Massachusetts • Member of the Urban Studies and Planning Visiting Committee at MIT and the Wesleyan University Board of Trustees • Received a BA from Wesleyan University and an MBA from Harvard Business School | ||||
Director since:January 2010 Age:56 Other Public Company Boards: • Current: None • Former (past 5 years): None |
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MATTHEW J. LUSTIG Chairman of North America Investment Banking and Head of Real Estate and Lodging at Lazard Fréres & Co. | Qualifications: Mr. Lustig has worked for more than 35 years in the real estate industry, during which time he has gained extensive experience providing strategic and financial advice and transaction execution to clients including leading real estate companies, and investing in real estate companies and assets as a principal. Professional Background: • Chairman of North America Investment Banking at Lazard Frères & Co. (“Lazard”), the investment bank, since 2019 (previously Head of North America Investment Banking, from 2012 to 2019), with responsibility for the management of a range of Financial Advisory/Investment Banking businesses • Head of Real Estate & Lodging at Lazard, a position he has held for more than 20 years, serving clients and running its Real Estate and Lodging industry group. In recent years, Mr. Lustig has played an active role in more than $300 billion of advisory assignments and transactions involving leading real estate and lodging companies in the public and private markets • Former Chief Executive Officer of the real estate investment business of Lazard and its successors, where he oversaw multiple funds with over $2.5 billion of equity capital invested in REITs and real estate operating companies • Director of Ventas, Inc., a REIT with a portfolio of senior housing, research and innovation, and healthcare properties, since May 2011 • Former Chairman of Atria Senior Living Group, Inc., which was acquired by Ventas in May 2011 • Former director of several other public and private fund portfolio REITs and companies | Other Leadership Experience, Community Involvement and Education: • Member of the Real Estate Roundtable, the Urban Land Institute, the Pension Real Estate Association (former Board and Executive Committee member) and the Council on Foreign Relations • Member of the Real Estate centers at the business schools of Wharton/UPenn (Chairman of the Advisory Board) and Columbia University • Member of the Board of Advisors at the School of Foreign Service at Georgetown University • Received a BSFS from Georgetown University | ||||
Director since:January 2011 Age:59 Independent Board Committees: • NCG (Chair) Other Public Company Boards: • Current: Ventas, Inc. • Former (past 5 years): None |
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OWEN D. THOMAS Chief Executive Officer of Boston Properties, Inc. | Qualifications: Mr. Thomas is a recognized leader in the real estate industry with more than 33 years of executive leadership, strategic planning and management experience, as well as substantial experience in financial and capital markets. Professional Background: • Chief Executive Officer of Boston Properties, Inc. since April 2013 • Chairman of the Board of Directors of Lehman Brothers Holdings Inc. (“LBHI”) from March 2012 until March 2013 and continues to serve as a member of the Board of Directors of LBHI • Various positions at Morgan Stanley from 1987 to 2011, including Chief Executive Officer of Morgan Stanley Asia Ltd., President of Morgan Stanley Investment Management, Head of Morgan Stanley Real Estate and Managing Director • Member of Morgan Stanley’s Management Committee from 2005 to 2011 | Other Leadership Experience, Community Involvement and Education: • Global Chairman of the Urban Land Institute • Director of the Real Estate Roundtable • Member of the Executive Board of Nareit • Received a BS in Mechanical Engineering from the University of Virginia and an MBA from Harvard Business School | ||||
Director since:April 2013 Age:58 Other Public Company Boards: • Current: None • Former (past 5 years): None |
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DAVID A. TWARDOCK Former President of Prudential Mortgage Capital Company, LLC | Qualifications: Mr. Twardock has more than 30 years of experience in the real estate finance industry, during which time he has overseen the lending and asset management of billions of dollars of commercial mortgages and other real estate debt financing and the management and disposition of billions of dollars of real estate equity. Professional Background: • Former President of Prudential Mortgage Capital Company, LLC, the real estate finance affiliate of Prudential Financial, Inc., from December 1998 to March 2013, which had more than $70 billion in assets under management and administration as of December 31, 2012 and annually lent billions of dollars in real estate debt financing • Various positions with Prudential relating to real estate equity and debt from 1982 to December 1998, including as Senior Managing Director of Prudential Realty Group from 1996 to November 1998 • Member of the advisory boards of Blue Vista Capital Management and LBA Realty • Director of Morgan Stanley Bank, N.A. from 2015 through 2018 | Other Leadership Experience, Community Involvement and Education: • Member of the Urban Land Institute and the Economics Club of Chicago • Former director of the Real Estate Roundtable and former Chairman of the Real Estate Roundtable Capital Markets Committee • Received a BS in Civil Engineering from the University of Illinois and an MBA in Finance and Behavioral Science from the University of Chicago | ||||
Director since:May 2003 Age:63 Board Committees: • Audit (Chair) • Compensation Other Public Company Boards: • Current: None • Former (past 5 years): None |
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WILLIAM H. WALTON, III Co-Founder and Managing Member of Rockpoint Group, LLC | Qualifications: Mr. Walton has 40 years of real estate investment, development and management experience, as well as executive leadership experience having served in various roles and as a director of several public and private companies. Professional Background: • Co-founder and managing member of Rockpoint Group, LLC (“Rockpoint”), a global real estate investment management firm, where Mr. Walton is responsible for the overall operations and management of Rockpoint, as well as overseeing the origination, structuring and asset management of all of Rockpoint’s investment activities; since 1994, the Rockpoint founding managing members have invested in approximately $60 billion of real estate • Co-founder of Westbrook Real Estate Partners, LLC (“Westbrook”), a real estate investment management firm • Managing director in the real estate group of Morgan Stanley & Co., Inc. prior toco-founding Westbrook • Director of Crow Holdings, a privately owned real estate and investment firm, and FRP Holdings, Inc., a company engaged in the real estate business • Former trustee of Corporate Office Properties Trust and former director of Florida Rock Industries and The St. Joe Company | Other Leadership Experience, Community Involvement and Education: • Involved with several real estate industry organizations • Director or trustee of severalnon-profit organizations, with a particular interest in educational and policy entities, including the American Enterprise Institute, the Jacksonville University Public Policy Institute, KIPP Jacksonville Schools, Mpala Wildlife Foundation and the University of Florida Investment Corporation • Former member of the boards of Communities in Schools, the Episcopal School of Jacksonville, Princeton University and Princeton University Investment Company • Received an AB from Princeton University and an MBA from Harvard Business School | ||||
Director since:May 2019 Age:68 Board Committees: • Audit Other Public Company Boards: • Current: FRP Holdings, Inc. • Former (past 5 years): None |
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› SUMMARY OF BOARD NOMINEE QUALIFICATIONS, EXPERIENCE AND DIVERSITY
In addition to the minimum qualifications that our Board of Directors believes are necessary for all directors, the following chart highlights certain qualifications and experience that are relevant to our long-term strategy and therefore relevant when considering candidates for election to our Board. A mark for an attribute indicates that the nominee gained the attribute through a current or prior position other than his or her service on the Boston Properties Board of Directors. Our Board did not assign specific weights to any of these attributes or otherwise formally rate the level of a nominee’s attribute relative to the rating for any other potential nominee. The absence of a mark for an attribute does not necessarily mean that the nominee does not possess that attribute; it means only that when the Board considered that nominee in the overall context of the composition of our Board of Directors, that attribute was not a key factor in 2017 held during the period for which he or she has been a directordetermination to nominate that individual. Further information on each nominee’s qualifications and (2)relevant experience is provided in the total number of meetings in 2017 of all committees of our Board of Directors on which the director served during the periods that he or she served. Directors are expected to attend annual meetings of our stockholders in person unless doing so is impracticable due to unavoidable conflicts. All directors attended the 2017 annual meeting of stockholders.individual biographical descriptions above.
Directors who qualify as“non-management” within the meaning of
NOMINEE QUALIFICATIONS AND EXPERIENCE | ||||||||||||||||||||||
Qualification/Experience | Ayotte | Duncan | Dykstra | Einiger | Hoskins | Klein | Linde | Lustig | Thomas | Twardock | Walton | |||||||||||
Strategic Planning | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | |||||||||||
CEO/Executive Management | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | ||||||||||||
Risk Oversight | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | |||||||||||
REITs/Real Estate | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | |||||||||||||||
Asset Management | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | ||||||||||||||
Capital Markets/ | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | ||||||||||||||
Other Public Company | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | ||||||||||||||
Government/Public Policy | 🌑 | 🌑 | 🌑 | |||||||||||||||||||
International | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | ||||||||||||
Financial Literacy | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | |||||||||||
Technology Industry | 🌑 | 🌑 | 🌑 | 🌑 | ||||||||||||||||||
Corporate Governance | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | ||||||||||||
Sustainability | 🌑 | 🌑 | 🌑 | 🌑 | ||||||||||||||||||
Talent Management | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 | 🌑 |
BOARD COMPOSITION | ||||||||
9 of 11 | 7.2 years | 63.2 years | 4 | 1 | ||||
Independent Directors | Average Tenure of all Nominees | Average Age of all Nominees | Women | Ethnic Minority |
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Under the rules of the New York Stock Exchange (“NYSE”) meet on a regular basis in executive sessions without management participation. The executive sessions occur after each regularly scheduled meeting of the entire Board and at such other times that thenon-management directors deem appropriate, and they are chaired by our lead independent director. Each director has the right to call an executive session. Currently, all of ournon-management directors are independent.
Director Succession Planning
Led by our Nominating and Corporate Governance Committee (the “NCG Committee”“NYSE”), our Board of Directors remains focused on ensuring a smooth transition if and when directors decide to retire or otherwise leave our Board and that the composition of our Board is systematically refreshed so that, taken as a whole, the Board has the desired mix of skills, experience, reputation and diversity relevant to our strategic direction and operating environment, as well as the knowledge, ability and independence to continue to deliver a high standard of governance expected by investors. Among other aspects of the process, our Board of Directors:
BOSTON PROPERTIES, INC. |2018 Proxy Statement 1
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Our Board of Directors recognizes the importance of continuity and that refreshment should not be effectuated all at once. In our proxy statement for our 2016 annual meeting of stockholders, we stated that our Board of Directors anticipates that changes to its composition would likely occur gradually over several years. Consistent with this statement, in 2016 our Board nominated and our stockholders elected two new directors (Ms. Karen E. Dykstra and Mr. Bruce W. Duncan). Continuing with this process, the NCG Committee recommended to our Board of Directors for nomination, and our Board nominated, a new candidate for election at the 2018 annual meeting of stockholders – former U.S. Senator Kelly A. Ayotte. Senator Ayotte was initially recommended for consideration by Joel I. Klein, our lead independent director.
Upon the recommendation of our NCG Committee, our Board of Directors also nominated the following incumbent directors for election to our Board of Directors at the 2018 annual meeting of stockholders: Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Jacob A. Frenkel, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Owen D. Thomas, Martin Turchin and David A. Twardock. Alan J. Patricof is not standing forre-election to our Board of Directors at the 2018 annual meeting of stockholders.
Leadership Structure
Since the 2016 annual meeting of stockholders, at which time Mortimer B. Zuckerman ceased serving as a director and our Board conferred upon him the honorary title of Chairman Emeritus, our Board of Directors has operated without a Chairman of the Board. Currently, Mr. Thomas serves as Chief Executive Officer and Mr. Klein serves as our lead independent director, as described in more detail below under “–Board Leadership – Lead Independent Director.” Our Board of Directors determined that this structure is appropriate because it (1) allows for the efficient and effective handling of the responsibilities of our Board of Directors with a key leading role played by our Chief Executive Officer, who is most directly responsible for developing and executing our strategic direction, and (2) helps ensure strong independent oversight by our Board of Directors through the role played by our lead independent director.
Our Board of Directors encourages strong communication among all of our independent directors and the Chief Executive Officer and believes that it is able to effectively provide independent oversight of our business and affairs, including risks facing the Company, through our lead independent director, the independent committees of our Board of Directors, the overall composition of our Board of Directors and contributions of all of our independent directors and other corporate governance processes in place.
2 BOSTON PROPERTIES, INC. |2018 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Unless and until our Board of Directors elects a Chairman of the Board, our lead independent director will preside at all meetings of our Board of Directors and the other functional responsibilities of the Chairman of the Board will be divided between our lead independent director and the Chief Executive Officer.
Lead Independent Director
We have a lead independent director who is selected annually by the vote of a majority of our independent directors. Currently, Mr. Klein serves as our lead independent director and our independent directors have selected him to continue to serve as our lead independent director following the 2018 annual meeting of stockholders. Our lead independent director has well-defined, substantive responsibilities that include, among others that may be assigned from time to time:
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Our Board of Directors has the following four committees: (1) Audit, (2) Compensation, (3) Nominating and Corporate Governance (“NCG”) and (4) Investment. Each of the Audit Committee, Compensation Committee and NCG Committee operates pursuant to a charter that was approved by our Board of Directors and that is reviewed and reassessed at least annually. A copy of each of these charters is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance.” Our Board of Directors may from time to time establish other special or standing committees to facilitate the management of Boston Properties or to discharge specific duties delegated to the committee by the full Board of Directors.
The membership and the function of each of the Audit Committee, Compensation Committee, NCG Committee and Investment Committee, and the number of meetings each held during 2017 are described below.
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
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6 BOSTON PROPERTIES, INC. |2018 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
BOARD’S ROLE IN RISK OVERSIGHT
Our Board of Directors plays an important role in the risk oversight of Boston Properties. Our Board of Directors is involved in risk oversight through direct decision-making authority with respect to significant matters and the oversight of management by our Board of Directors and its committees. In particular, our Board of Directors administers its risk oversight function through (1) the review and discussion of regular periodic reports to our Board of Directors and its committees on topics relating to the risks that Boston Properties faces, including, among others, market conditions, tenant concentrations and credit worthiness, leasing activity and expirations, the status of current and anticipated development projects, compliance with debt covenants, management of debt maturities, access to debt and equity capital markets, existing and potential legal claims against Boston Properties, cyber attacks and intrusions, and various other matters relating to Boston Properties’ business, (2) the required approval by our Board of Directors (or a committee thereof) of significant transactions and other decisions, including, among others, acquisitions and dispositions of properties, development projects, new borrowings and the appointment and retention of Boston Properties’ senior management, (3) the direct oversight of specific areas of Boston Properties’ business by the Audit, Compensation and NCG Committees, and (4) regular periodic reports from Boston Properties’ independent registered public accounting firm and other outside consultants regarding various areas of potential risk, including, among others, those relating to the qualification of Boston Properties as a real estate investment trust (“REIT”) for tax purposes and Boston Properties’ internal control over financial reporting. Our Board of Directors also relies on management to bring significant matters impacting Boston Properties to its attention.
Pursuant to the Audit Committee’s charter, the Audit Committee is specifically responsible for discussing the guidelines and policies that govern the process by which Boston Properties’ exposure to risk is assessed and managed by management. As part of this process, the Audit Committee oversees the planning and conduct of an annual risk assessment that is designed to identify and analyze risks to achieving Boston Properties’ business objectives. The results of the risk assessment are then discussedwith management and used to develop Boston Properties’ annual internal audit plan. In addition, as one component of Boston Properties’ anti-fraud program, Boston Properties, under the supervision of the Audit Committee, established a hotline that is available for the anonymous and confidential submission of complaints relating to any matter to encourage the reporting of questionable activities directly to our senior management and the Audit Committee (see“– Communications with the Board” below).
Because of the role of our Board of Directors in the risk oversight of Boston Properties, our Board of Directors believes that any leadership structure that it adopts must allow it to effectively oversee the management of the risks relating to Boston Properties’ operations. Our Board of Directors recognizes that there are different leadership structures that could allow it to effectively oversee the management of the risks relating to Boston Properties’ operations, and while our Board believes its current leadership structure enables it to effectively manage such risks, it was not the primary reason our Board of Directors selected its current leadership structure over other potential alternatives. See the discussion under the heading “–Board Leadership – Leadership Structure” above for a discussion of why our Board of Directors has determined that its current leadership structure is appropriate.
Under the rules of the NYSE, a majority of the Board of Directors must qualify as “independent directors.” To qualify as an “independent director,” the Board of Directors must affirmatively determine that the director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us). Our Board of Directors established categorical standards to assist it in making the required independence determinations.
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Under these categorical standards, any relationship with us shall be deemed not material if:
1. | The relationship does not preclude a finding of independence under Sections 303A.02(b) of the NYSE Listed Company Manual (the “NYSE Disqualifying Rules”); and |
2. | The relationship does not involve any of the following, whether currently existing or occurring since the end of the last fiscal year or during the past three fiscal years: |
(a) | a director being an executive officer of, or owning, or having owned, of record or beneficially in excess of ten percent (10%) equity interest in, any business or professional entity that has made during any of such fiscal years, or proposes to make during the Company’s current fiscal year, payments to the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company for property or services in excess of five percent (5%) of: (i) the Company’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year), or (ii) the other entity’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year); |
(b) | a director being an executive officer of, or owning, or having owned, of record or beneficially in excess of ten percent (10%) equity interest in, any business or professional entity to which the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company has made during any of such fiscal years, or proposes to make during the Company’s current fiscal year, payments for property or services in excess of five percent (5%) of: (i) the Company’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year), or (ii) the other entity’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year); |
(c) | a director or an immediate family member of the director being an officer, director or trustee of a charitable organization where the annual discretionary charitable contributions of the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company in any single year to the charitable organization exceeded the greater of $1 million or two percent (2%) of that organization’s consolidated gross revenues for the fiscal year; |
(d) | a director or an immediate family member of a director being indebted to the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company in an amount in excess of $120,000; |
(e) | a director being an executive officer, partner or greater than 10% equity owner of an entity, or being a trustee or a substantial beneficiary of a trust or estate, indebted to the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company in an amount in excess of the greater of $120,000 or 5% of such entity’s total consolidated assets, or to whom the Company or an entity controlled by an executive officer of the Company is indebted (other than with respect to (i) any publicly traded debt securities of the Company or such entity or(ii) non-recourse loans secured by real estate where both the lender and the Company or such entity intend for the lender to transfer all right to, and control over, the loan within 12 months and the documentation includes customary provisions for loans targeted at the commercial mortgage backed securities (CMBS) or collateralized debt obligation (CDO) markets) in an amount in excess of 5% of the Company’s or such entity’s total consolidated assets; |
(f) | a transaction or currently proposed transaction (other than relating to the ownership of securities), which involved or involves the direct or indirect payment in a single year of in excess of $120,000 from the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company to a director or an immediate family member of a director; |
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(g) | a director or an immediate family member of a director being an executive officer, general or managing partner or owner of more than 10% of the outstanding equity securities of an entity that has aco-investment or is a joint venture partner with the Company where the amount of the entity’s equity investment in any single year exceeds the greater of $1 million or 2% of the total consolidated assets of the entity; or |
(h) | a director or an immediate family member of a director being an executive officer, general or managing partner or owner of more than 10% of the outstanding equity securities of an entity (other than the Company) in which an executive officer of the Company or an entity controlled by an executive officer of the Company is an executive officer, general or managing partner or owner of more than 10% of the outstanding equity securities of the entity. |
For purposes of these standards, “immediate family” member has the same meaning as in the NYSE Disqualifying Rules.
Relationships not specifically deemed not material by the above categorical standards may, in the Board’s judgment, be deemed not to be material.
› 2020 INDEPENDENCE DETERMINATIONS
The Board of Directors concluded that Mses. Ayotte, Dykstra and Einiger and Messrs. Duncan, Frenkel, Klein, Lustig, Twardock and Turchinthe following directors qualify as independent directors under NYSE rules because none of them (1) has any relationships that would disqualify him or her from being considered independent under the minimum objective standards contained in the NYSE rules or (2) has any relationships other than those deemed to be immaterial under the categorical standards adopted by the Board of Directors.
› Kelly A. Ayotte › Bruce W. Duncan › Karen E. Dykstra | › Carol B. Einiger › Diane J. Hoskins › Joel I. Klein | › Matthew J. Lustig › David A. Twardock › William H. Walton, III | ||||
In determining that Mr.each of Ms. Ayotte and Messrs. Duncan and Twardock qualified as an independent director for purposes of his or her service on the Compensation Committee, theour Board considered Mr. Twardock’s membership on the Board of Directors of Morgan Stanley Bank, N.A. and noted that he is anon-employee director. Morgan Stanley Bank, N.A. and/(1) each serves or its affiliates are commercial lenders to the Company and tenants in the Company’s properties and have acted as underwriters or sales agents for securities offerings of the Company. The Board’s conclusion that Mr. Twardock is independent was based on the following information, which in the view of the Board demonstrates the relatively de minimis nature of these transactions as they relate to Mr. Twardock’s independence: (1) the Company’s long-standing relationships with Morgan Stanley Bank, N.A. and its affiliates predate Mr. Twardock’s appointment to Morgan Stanley Bank, N.A.’s board and our Board of Directors; (2)previously served as anon-employee director of Morgan Stanley Bank, N.A., Mr. Twardock receives no personal benefit, directly or indirectly,for a company with regard to these transactions; (3) Mr. Twardock does not have any direct or indirect decision making authority or any other role,which Boston Properties has a commercial relationship and engaged in any capacity, relating to these transactions; and (4) these transactions were arms’ length transactions undertaken in the ordinary course of business.
In determining that Mr. Duncan qualified as an independentbusiness, (2) each transaction was on arms’-length terms and the director for purposes of his service on the Compensation Committee, the Board considered Mr. Duncan’s membership on the Board of Directors of Marriott International, Inc. and noted that he is anon-employee director. The Company’s joint venture with The Bernstein Companies is party to a lease agreement with an affiliate of Marriott International, Inc. In addition, Marriott International, Inc. manages the Company’s hotel property in Cambridge, MA. The Board’s conclusion that Mr. Duncan is independent was based on the following information, whichhad no direct or indirect involvement in the view oftransaction, and (3) the Board demonstrates the relatively de minimis nature of these transactions as they relate to Mr. Duncan’s independence: (1) the Company’s long-standing relationship with Marriott International, Inc. predates Mr. Duncan’s appointment to Marriott’s board by more than 30 years (Mr. Duncan joined the Marriott International, Inc. boarddirector had no pecuniary interest in September 23, 2016 following Marriott’s acquisition of Starwood Hotel & Resorts Worldwide, Inc.); (2) as anon-employee director of Marriott International, Inc., Mr. Duncan receives no personal benefit, directly or indirectly, with regard to the success of these transactions; (3) Mr. Duncan does not have any direct or indirectthe transaction.
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
decision making authority or any other role, in any capacity, relating to these transactions; and (4) these transactions were arms’ length transactions undertaken in the ordinary course of business.
CONSIDERATION OF DIRECTOR NOMINEES
Securityholder Recommendations› SECURITYHOLDER RECOMMENDATIONS
The NCG Committee’s current policy is to review and consider any director candidates who have been recommended by securityholders in compliance with the procedures established from time to time by the NCG Committee. All securityholder recommendations for director candidates must be submitted to our Secretary at Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103, who will forward all recommendations to the NCG Committee. We did not receive any securityholder recommendations for director candidates for election at the 20182020 annual meeting in compliance with the procedures set forth below. All securityholder recommendations for director candidates for election at the 20192021 annual meeting of stockholders must be submitted to our Secretary on or before December 7, 20184, 2020 and must include the following information:
the name and address of record of the securityholder;
a representation that the securityholder is a record holder of our securities, or if the securityholder is not a record holder, evidence of ownership in accordance with Rule14a-8(b)(2) under the Securities Exchange Act of 1934;
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1› | PROPOSAL 1: ELECTION OF DIRECTORS |
the name, age, business and residential address, educational background, current principal occupation or employment, and principal occupation or employment for the preceding five (5) full fiscal years of the proposed director candidate;
a description of the qualifications and background of the proposed director candidate which addresses the minimum qualifications and other criteria for Board membership as approved by the Board from time to time;
a description of all arrangements or understandings between the securityholder and the proposed director candidate;
the consent of the proposed director candidate (1) to be named in the proxy statement relating to our annual meeting of stockholders and (2) to serve as a director if elected at such annual meeting; and
any other information regarding the proposed director candidate that is required to be included in a proxy statement filed pursuant to the rules of the SEC.Securities and Exchange Commission (“SEC”).
Board Membership Criteria› BOARD MEMBERSHIP CRITERIA
The NCG Committee has established criteria for NCG Committee-recommended director nominees. These criteria include the following specific, minimum qualifications that the NCG Committee believes must be met by an NCG Committee-recommended nominee for a position on the Board:
the candidate must have experience at a strategic or policymaking level in a business, government,non-profit or academic organization of high standing;
the candidate must be highly accomplished in his or her respective field, with superior credentials and recognition;
the candidate must be well regarded in the community and must have a long-term reputation for high ethical and moral standards;
the candidate must have sufficient time and availability to devote to our affairs, particularly in light of the number of boards on which the nomineecandidate may serve;
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
to the extent the candidate serves or has previously served on other boards, the candidate must have a history of actively contributing at board meetings.
In addition to the minimum qualifications for each nominee set forth above, the NCG Committee will recommend director candidates to the full Board for nomination, or present director candidates to the full Board for consideration, to help ensure that:
a majority of the Board of Directors will be “independent” as defined by the NYSE rules;
each of its Audit, Compensation and NCG Committees will be comprised entirely of independent directors; and
at least one member of the Audit Committee will have such experience, education and other qualifications necessary to qualify as an “audit committee financial expert” as defined by the rules of the SEC.
Finally, in addition to any other standards the NCG Committee may deem appropriate from time to time for the overall structure and composition of the Board, the NCG Committee may consider the following factors when recommending director candidates to the full Board for nomination, or presenting director candidates to the full Board for consideration:
whether the candidate has direct experience in the real estate industry or in the markets in which we operate; and
whether the candidate, if elected, assists in achieving a mix of Board members that represents a diversity of background and experience.
Identifying and Evaluating Nominees› IDENTIFYING AND EVALUATING NOMINEES
The NCG Committee may solicit recommendations for director nominees from any or all of the following sources:non-management directors, the Chief Executive Officer, other executive officers, third-party search firms or any other source it deems appropriate.
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1› | PROPOSAL 1: ELECTION OF DIRECTORS |
The NCG Committee will review and evaluate the qualifications of any proposed director candidate that it is considering or has been recommended to it by a securityholder in compliance with the NCG Committee’s procedures for that purpose, and conduct inquiries it deems appropriate into the background of these proposed director candidates. In identifying and evaluating proposed director candidates, the NCG Committee may consider, in addition to the minimum qualifications for NCGCommittee-recommended director nominees, all facts and circumstances that it deems appropriate or advisable, including, among other things, the skills of the proposed director candidate, his or her depth and breadth of business experience, his or her independence and the needs of our Board. Neither the NCG Committee nor the Board has a specific policy with regard to the consideration of diversity in identifying director nominees, although both may consider diversity when identifying and evaluating proposed director candidates. As noted above, the NCG Committee, when recommending director candidates to the full Board for nomination, may consider whether a director candidate, if elected, assists in achieving a mix of Board members that represents a diversity of background and experience. Other than circumstances in which we may be legally required by contract or otherwise to provide third parties with the ability to nominate directors, the NCG Committee will evaluate all proposed director candidates that it considers or who have been properly recommended to it by a securityholder based on the same criteria and in substantially the same manner, with no regard to the source of the initial recommendation of the proposed director candidate.
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CORPORATE GOVERNANCE PRINCIPLES AND
Boston Properties is committed to strong corporate governance policies, practices, and procedures designed to make the Board effective in exercising its oversight role. Our Board of Directors oversees management performance on behalf of our stockholders to ensure that the long-term interests of our stockholders are being served, to monitor adherence to Boston Properties standards’ and policies, and to promote the exercise of responsible corporate citizenship. Our Board values and considers the feedback we receive from our stockholders, and we have taken a number of actions over the last several years to increase stockholder rights, enhance the Board’s structure, and augment our commitment to sustainability and corporate responsibility taking into account those perspectives.
BOARD MATTERSLEADERSHIP STRUCTURE
Our Corporate Governance Guidelines provide that our Board of Directors does not have a policy with respect to whether or not the role of Chairman of the Board and CEO should be separate or combined. However, our Board has determined that its leadership structure should include either an independent,non-executive Chairman of the Board or a lead independent director who satisfies our standards for independence. Accordingly, our Corporate Governance Guidelines provide that it is the Board’s policy that if (1) the positions of Chairman of the Board and CEO are held by the same person, (2) the position of Chairman of the Board is held by anon-independent director or (3) none of the directors has been elected to serve as Chairman of the Board, then the independent directors shall select an independent director to serve as lead independent director.
When our Board of Directors amended our Corporate Governance Guidelines in 2014 to create the position of lead independent director, the Board contemplated that in the future it might determine that it is advisable to appoint an independent,non-executive Chairman of the Board. As a result, our Corporate Governance Guidelines provide that an independent director selected to serve as lead independent director will serve in that role until (1) he or she ceases to be an independent director or resigns from the position, (2) a successor is selected by a majority of the independent directors or (3) an independent director is serving as the Chairman of the Board. In addition, if the Chairman of the Board is an independent director, then the Chairman of the Board shall assume the responsibilities of the lead independent director referenced above and there will not be a separate lead independent director.
The independent directors selected Mr. Klein to serve as lead independent director in May 2016, a position he held until May 2019. Our Board of Directors appointed Mr. Klein as independent,non-executive Chairman of the Board, effective immediately following the 2019 annual meeting of stockholders. In addition to responsibilities that may be assigned from time to time by the full Board, Mr. Klein’s responsibilities as Chairman include:
• Approving information sent to the Board • Approving Board meeting agendas and schedules to ensure that sufficient time for all agenda items • Coordinating the work of each committee with the activities of the full Board • Calling meetings of the independent directors • Presiding at all meetings of the Board, including executive sessions of independent directors • Attending meetings of Board committees regularly • Working with the CEO and the Chair of the NCG Committee to provide strategic direction on all Board and governance matters • Serving as liaison between the CEO and the independent directors | • Working with the CEO on matters of strategic importance to the Board and the Company • Ensuring that he is available, if requested by major stockholders, for direct consultation and communication • Working with the Compensation Committee to establish and review annual and long-term goals for assessing performance and to evaluate the performance of the CEO • Conductingbi-annual interviews with individual directors regarding individual contributions and overall Board composition and planning • Independently reviewing with the CEO the Company’s succession plan for executive officers |
Our Board believes that Mr. Klein’s appointment as Chairman enhances our independent directors’ oversight of our business and affairs. Our Board of Directors encourages strong communication among all of its independent directors and the CEO, and the Board believes that it has been able to effectively provide independent oversight of our business and affairs, including risks facing the
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2› | CORPORATE GOVERNANCE |
Company, through our Chairman of the Board, the independent committees of our Board of Directors, the overall composition of our Board of Directors and contributions from all of our independent directors and other corporate governance processes in place.
Number of Meetings and Attendance. Our Board of Directors met eight times during 2019. Each incumbent director attended at least 75% of the aggregate of (1) the total number of meetings of our Board of Directors in 2019 held during the period for which he or she was a director and (2) the total number of meetings in 2019 of all committees of our Board of Directors on which the director served during the periods that he or she served.As a whole, during 2019, our directors attended more than 98% of the aggregate number of Board meetings and meetings of committees on which they served.
Annual Meeting Attendance.Directors are expected to attend annual meetings of our stockholders in person unless doing so is impracticable due to unavoidable conflicts. Nine of the eleven directors then serving, along with two first-time nominees, attended the 2019 annual meeting of stockholders. Two directors then serving did not attend the 2019 annual meeting of stockholders because they were not standing forre-election.
Meetings ofNon-Management Directors.Directors who qualify as“non-management” within the meaning of the rules of the NYSE meet on a regular basis in executive sessions without management participation. The executive sessions occur after each regularly scheduled meeting of our entire Board and at such other times that thenon-management directors deem appropriate, and they are chaired by our independent,non-executive Chairman of the Board. Each director has the right to call an executive session. Currently, all of ournon-management directors are independent.
BOARD REFRESHMENT AND EVALUATIONS
› DIRECTOR SUCCESSION PLANNING
Led by our Chairman of the Board and our NCG Committee, our Board of Directors remains focused on ensuring a smooth transition if and when directors decide to retire or otherwise leave our Board and that the composition of our Board is systematically refreshed so that, taken as a whole, our Board has the desired mix of skills, experience, reputation and diversity relevant to our strategic direction and operating environment, as well as the knowledge, ability and independence to continue to deliver a high standard of governance expected by investors. Among other aspects of the process, our Board of Directors:
identifies the collective mix of desired skills, experience, knowledge, diversity and independence for our Board of Directors, taken as a whole, and identifies potential opportunities for enhancement in one or more of those areas;
considers each current director’s experience, skills, principal occupation, reputation, independence, age, tenure, committee membership and diversity (including geography, gender and ethnicity); and
• | considers the results of our Board and committee self-evaluations, as well as feedback received from thisbi-annual oral interviews of each director by our Chairman of the Board (see“– Board and Committee Evaluations” below). |
Our Board of Directors recognizes the importance of continuity and that refreshment should not be effectuated all at once. Consistent with this approach, between 2016-2019, our Board nominated, and our stockholders elected, five new directors (Mses. Ayotte, Dykstra and Hoskins and Messrs. Duncan and Walton). |
Board Committee Rotation. The NCG Committee also considers the periodic rotation of committee members and committee chairs to introduce fresh perspectives and to broaden and diversify the views and experience represented on committees.
Director Tenure and Mandatory Retirement Age. To ensure that our Board has an appropriate balance of experience, continuity and fresh perspective, our Board considers the length of tenure and age when nominating candidates for election. Our Board does not have formal limits on director tenure, but has a policy that provides no person shall be nominated by the Board for election as anon-employee director following his or her 75th birthday.
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› BOARD AND COMMITTEE EVALUATIONS
The feedback received from each member of our Board during the Board and committee evaluation process plays a critical role in ensuring that our Board and its committees function effectively. To this end, the NCG Committee is responsible for establishing the process used and the criteria for the evaluations.
Topics considered during the Board and committee evaluations include: Board and Committee Operations | ||||
• Board and committee membership, including independence, director skills, background, expertise and diversity • Committee structure | ||||
• Process for director nominations | ||||
• Number and conduct of meetings, including time allocated for, and encouragement of, candid dialogue | ||||
• Materials and information, including quality, quantity and timeliness of information received from management, and suggestions for educational sessions | ||||
• Culture | ||||
Board Performance | ||||
• Strategy oversight • Identification of topics that should receive more attention and discussion • Management succession • Financial, cyber and other risk oversight | ||||
Committee Performance | ||||
• Performance of committee duties under its charter • Effectiveness of outside advisors | ||||
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Our Board of Directors has an (1) Audit, (2) Compensation and (3) NCG Committee. Each of the Audit Committee, Compensation Committee and NCG Committee operates pursuant to a charter that was approved by our Board of Directors and that is reviewed and reassessed at least annually. A copy of each of these charters is available on our website athttp://www.bxp.comunder the heading “Corporate Governance.” Our Board of Directors may from time to time establish other special or standing committees to facilitate the management of Boston Properties or to discharge specific duties delegated by the full Board of Directors.
The membership and the function of each of the Audit Committee, Compensation Committee and NCG Committee, and the number of meetings each held during 2019, are described below.
› AUDIT COMMITTEE
Members: David A. Twardock (Chair)* Karen E. Dykstra* William H. Walton, III† Number of Meetings in 2019:9 *Our Board of Directors determined that each of Ms. Dykstra and Mr. Twardock qualifies as an “audit committee financial expert” as that term is defined in the rules of the SEC. † Mr. Walton was appointed to the Audit Committee on May 21, 2019. | The Audit Committee’s responsibilities include: • sole authority to appoint, retain, terminate and determine the compensation of our independent registered public accounting firm; • reviewing with our independent registered public accounting firm the scope and results of the audit engagement; • approving professional services provided by our independent registered public accounting firm; • reviewing the independence of our independent registered public accounting firm; • overseeing the planning and conduct of our annual risk assessment; • evaluating the Company’s internal audit function and reviewing the internal audit plan; and • performing such other oversight functions as may be requested by our Board of Directors from time to time. Each member of the Audit Committee is “independent” as that term is defined in the rules of the SEC and the NYSE. For additional disclosures regarding the Audit Committee, including the Audit Committee Report, see “Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm” beginning on page 84. |
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› COMPENSATION COMMITTEE
Members: Bruce W. Duncan (Chair) Kelly A. Ayotte Carol B. Einiger David A. Twardock Number of Meetings in 2019:7 | The Compensation Committee’s responsibilities include: • reviewing and approving the corporate goals and objectives relevant to the compensation of the CEO and certain designated senior executive officers; • evaluating the performance of the CEO and designated senior executive officers in light of such goals and objectives and determining and approving compensation of these officers based on such evaluation; • reviewing and approving the compensation of other executive officers; • reviewing and approving grants and awards under all incentive-based compensation plans and equity-based plans; • reviewing and making recommendations to the full Board of Directors regarding the compensation ofnon-employee directors; and • performing other functions and duties deemed appropriate by our Board of Directors. None of the members of the Compensation Committee is an employee of Boston Properties and each of them is an independent director under the NYSE rules. The Compensation Committee makes all compensation decisions for all executive officers. The Compensation Committee reviews and approves all equity awards for all employees and delegated limited authority to the CEO to make equity grants to employees who are not executive officers. In 2019, the Compensation Committee engaged Frederic W. Cook & Co., Inc. (“FW Cook”) to serve as its new independent, third-party advisor to provide a fresh perspective on our overall executive compensation program, advise on the reasonableness of executive compensation levels in comparison with those of other similarly situated companies and consult on the structure of our executive compensation program to optimally support our business objectives. FW Cook also advised on executive compensation trends among REITs and the broader market. Information concerning the nature and scope of FW Cook’s assignments and related disclosures is included under “Compensation Discussion and Analysis” beginning on page 43. The Compensation Committee Report is included in this proxy statement on page 82. |
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› NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Members: Matthew J. Lustig (Chair) Kelly A. Ayotte Bruce W. Duncan Diane J. Hoskins* Number of Meetings in 2019:3 *Ms. Hoskins was appointed to the NCG Committee on May 21, 2019. | The NCG Committee is responsible for, among other functions: • identifying individuals qualified to become Board members, consistent with criteria established by the NCG Committee, and recommending to the Board director nominees for election at each annual meeting of stockholders; • establishing a policy with regard to the consideration by the NCG Committee of director candidates recommended by securityholders; • establishing procedures to be followed by securityholders submitting such recommendations and establishing a process for identifying and evaluating nominees for the Board of Directors, including nominees recommended by securityholders; and • performing such other functions as may be requested by our Board of Directors from time to time. The NCG Committee is also responsible for annually reviewing our Corporate Governance Guidelines and recommending any changes to the Board of Directors. These Corporate Governance Guidelines provide that the NCG Committee, together with our Chief Executive Officer, is responsible for coordinating succession planning by the Board of Directors. A copy of the Corporate Governance Guidelines is available on our website athttp://investors.bxp.com/governance-guidelines. Each member of the NCG Committee is an independent director under the NYSE rules. |
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BOARD’S ROLE IN RISK OVERSIGHT
Our Board of Directors plays an important role in the risk oversight of Boston Properties. Our Board of Directors is involved in risk oversight through direct decision-making authority with respect to significant matters and the oversight of management by our Board of Directors and its committees. In particular, our Board of Directors administers its risk oversight function through:
the review and discussion of regular periodic reports to our Board of Directors and its committees on topics relating to the risks that Boston Properties faces, including, among others:
› | market conditions; |
› | tenant concentrations and credit worthiness; |
› | leasing activity and expirations; |
› | the status of current and anticipated development projects; |
› | compliance with debt covenants; |
› | management of debt maturities; |
› | access to debt and equity capital markets; |
› | existing and potential legal claims against Boston Properties; |
› | climate change and sustainability; |
› | potential cyber attacks and intrusions; |
› | public health crises, pandemics and epidemics; and |
› | various other matters relating to Boston Properties’ business; |
the required approval by our Board of Directors (or a committee thereof) of significant transactions and other decisions, including, among others:
› | acquisitions and dispositions of properties; |
› | development projects; |
› | new borrowings; and |
› | the appointment and retention of Boston Properties’ senior management; |
the direct oversight of specific areas of Boston Properties’ business by the Audit, Compensation and NCG Committees; and
regular periodic reports from Boston Properties’ independent registered public accounting firm and other outside consultants regarding various areas of potential risk, including, among others, those relating to the qualification of Boston Properties as a REIT for tax purposes and Boston Properties’ internal control over financial reporting.
Our Board of Directors also relies on management to bring significant matters impacting Boston Properties to its attention.
Pursuant to the Audit Committee’s charter, the Audit Committee is specifically responsible for discussing the guidelines and policies that govern the process by which Boston Properties’ exposure to risk is assessed and managed by management. As part of this process, the Audit Committee oversees the planning and conduct of an annual risk assessment that is designed to identify and analyze risks to achieving Boston Properties’ business objectives. The results of the risk assessment are then discussed with management and used to develop Boston Properties’ annual internal audit plan. In addition, as one component of Boston Properties’ anti-fraud program, Boston Properties, under the supervision of the Audit Committee, established a hotline that is available for the anonymous and confidential submission of complaints relating to any matter to encourage the reporting of questionable activities directly to our senior management and the Audit Committee (see“– Other Governance Matters – Communications with the Board” below).
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2› | CORPORATE GOVERNANCE |
Because of the role of our Board of Directors in the risk oversight of Boston Properties, our Board of Directors believes that any leadership structure that it adopts must allow it to effectively oversee the management of the risks relating to Boston Properties’ operations. Our Board of Directors recognizes that there are different leadership structures that could allow it to effectively oversee the management of the risks relating to Boston Properties’ operations, and while our Board believes its current leadership structure enables it to effectively manage such risks, it was not the primary reason our Board of Directors selected its current leadership structure over other potential alternatives. See the discussion under the heading “– Board Leadership Structure” above for a discussion of why our Board of Directors has determined that its current leadership structure is appropriate.
› CODE OF BUSINESS CONDUCT AND ETHICS AND OTHER POLICIES
Our Board of Directors adopted the following policies, copies of which are available on our website:
Code of Business Conduct and Ethics (the “Code of Ethics”) available on our website athttp://investors.bxp.com/code-conduct-and-ethics
The Code of Ethics governs business decisions made and actions taken by our directors, officers and employees. We intend to disclose on this website any amendment to, or waiver of, any provision of this Code of Ethics applicable to our directors and executive officers that would otherwise be required to be disclosed under the rules of the SEC or the NYSE rules.
Corporate Governance Guidelines available on our website athttp://investors.bxp.com/governance-guidelines
Policy on Company Political Spending available on our website athttp://investors.bxp.com/policy-political-spend
› COMMUNICATIONS WITH THE BOARD
Stockholders and other interested parties who wish to communicate with any of our directors or the Board of Directors as a group, may do so by writing to them at Name(s) of Director(s)/Board of Directors of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
Stockholders and other interested parties who wish to contact the Audit Committee to report complaints or concerns regarding accounting, internal accounting controls or auditing matters, may do so by:
• | following any of the “Procedures for Submission of Complaints under the Audit Committee Complaint Procedures” that are attached as Exhibit 1 to our Code of Ethics (see “– Code of Business Conduct and Ethics and Other Policies” above), or |
writing to the Chair of the Audit Committee of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
You are welcome to make any such reports anonymously, but we prefer that you identify yourself so that we may contact you for additional information if necessary or appropriate.
Stockholders and other interested parties who wish to communicate with ournon-management directors as a group, may do so by writing toNon-Management Directors of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
We recommend that all correspondence be sent via certified U.S. mail, return receipt requested. All correspondence received by the Compliance Officer will be forwarded by the Compliance Officer promptly to the addressee(s).
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2› | CORPORATE GOVERNANCE |
› COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Mses. Ayotte and Einiger and Messrs. Duncan and Twardock. None of these persons has served as an officer or employee of Boston Properties. None of these persons had any relationships with Boston Properties requiring disclosure under Item 404 of RegulationS-K. None of Boston Properties’ executive officers served as a director or a member of a compensation committee (or other committee serving a similar function) of any other entity, an executive officer of which served as a director of Boston Properties or a member of the Compensation Committee during 2019.
›PROXY ACCESSBY-LAW PROVISIONS
OurBy-laws include a proxy access right for stockholders, pursuant to which a stockholder, or group of no more than five stockholders, meeting specified eligibility requirements, may include director nominees in our proxy materials for annual meetings of our stockholders. In order to be eligible to utilize these proxy access provisions, a stockholder, or group of stockholders, must, among other requirements:must:
have owned shares of common stock equal to at least 3% of the aggregate of the issued and outstanding shares of common stock continuously for at least the prior three years;
represent that such shares were acquired in the ordinary course of business and not with the intent to change or influence control and that such stockholder or group does not presently have such intent; and
provide a notice requesting the inclusion of director nominees in our proxy materials and provide other required information to us not less than 120 days prior to the anniversary of the date of the proxy statement for the prior year’s annual meeting of stockholders (with adjustments if the date for the upcoming annual meeting of stockholders is more than 30 days before or more than 60 days after the anniversary date of the prior year’s annual meeting).
For purposes of the foregoing requirements, issued and outstanding common units, other than those owned by us, Boston Properties Limited Partnership (the(our “Operating Partnership”) or any of their directly or indirectly wholly owned subsidiaries and excluding issued and outstanding long term incentive units, will be treated as issued and outstanding shares of common stock.
Additionally, all director nominees submitted through these provisions must be independent and meet specified additional criteria, and stockholders will not be entitled to utilize this proxy access right at an annual meeting if we receive notice through our traditional advanced noticeby-law provisions that a stockholder intends to nominate a director at such meeting. The maximum number of director nominees that may be submitted pursuant to these provisions may not exceed 25% of the number of directors then in office.
The foregoing proxy access right is subject to additional eligibility, procedural and disclosure requirements set forth in ourBy-laws.
CODE OF BUSINESS CONDUCT AND ETHICS AND OTHER POLICIES
Code of Business Conduct and Ethics
Our Board of Directors adopted a Code of Business Conduct and Ethics (the “Code of Ethics”), which governs business decisions made and actions taken by our directors, officers and employees. A copy of this Code of Ethics is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Code of Conduct and Ethics.” We intend to disclose on this website any amendment to, or waiver of, any provision of this Code of Ethics applicable to our directors and executive officers that would otherwise be required to be disclosed under the rules of the SEC or the NYSE rules.
Corporate Governance Guidelines
Our Board of Directors adopted Corporate Governance Guidelines, a copy of which is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Governance Guidelines.”
| 2020 Proxy Statement 3312 BOSTON PROPERTIES, INC. |2018
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Policy on Company Political Spending
Our Board of Directors adopted a Policy on Company Political Spending, a copy of which is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Policy on Political Spending.”
Stockholders and other interested parties who wish to communicate with any of our directors or the Board of Directors as a group, may do so by writing to them at Name(s) of Director(s)/Board of Directors of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
Stockholders and other interested parties who wish to contact the Audit Committee to report complaints or concerns regarding accounting, internal accounting controls or auditing matters, may do so by:
3› |
Biographies of the Audit Committee of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
You are welcome to make any such reports anonymously, but we prefer that you identify yourself so that we may contact you for additional information if necessary or appropriate.
Stockholders and other interested parties who wish to communicate with ournon-management directors as a group, may do so by writing toNon-Management Directors of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
We recommend that all correspondence be sent via certified U.S. mail, return receipt requested. All correspondence received by the Compliance Officer will be forwarded by the Compliance Officer promptly to the addressee(s).
BOSTON PROPERTIES, INC. |2018 Proxy Statement 13
PROPOSAL 1: ELECTION OF DIRECTORS
At the annual meeting, directors shall be elected to hold office for aone-year term expiring at the 2019 annual meeting of stockholders or until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Following the recommendation of the NCG Committee, our Board of Directors has nominated Kelly A. Ayotte, Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Jacob A. Frenkel, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Owen D. Thomas, Martin Turchin, and David A. Twardock for election. Each nominee,executive officers, other than Senator Ayotte, is currently serving as a director of Boston Properties. In making its recommendations, the NCG Committee considered a number of factors, including its criteria for Board membership, which include the minimum qualifications that must be possessed by a director candidate in order to be nominated for a position on our Board. Our Board of Directors anticipates that, if elected, the nominees will serve as directors. However, if any person nominated by our Board of Directors is unable to serve or for good cause will not serve, the proxies will be voted for the election of such other person as our Board of Directors may recommend.
OurBy-laws provide for a majority voting standard. This means that, in an uncontested election, nominees for directorMessrs. Thomas and Linde, are elected if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. The majority voting standard would not apply in contested elections, which, generally, will include any situation in which Boston Properties receives a notice that a stockholder has nominated a person for election to our Board of Directors at a meeting of stockholders that is not withdrawn on or before the tenth day before Boston Properties first mails its notice for such meeting to the stockholders.
The majority voting standard will apply to the election of directors at the 2018 annual meeting of stockholders. Accordingly, nominees for director will be elected if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. Brokernon-votes, if any, and abstentions will not be treated as votes cast.
Our Board of Directors has also adopted a resignation policy, included in our Corporate Governance Guidelines, under which a director who fails to receive the required number of votes forre-election will tender his or her resignation to our Board of Directors for its consideration. The NCG Committee will act on an expedited basis to determine whether it is advisable to accept the director’s resignation and will submit the recommendation for prompt consideration by our Board of Directors. Our Board of Directors will act on the tendered resignation within 90 days following certification of the stockholder vote and will promptly and publicly disclose its decision. The director whose resignation is under consideration will abstain from participating in any decision regarding his or her resignation. If the resignation is not accepted, the director will continue to serve until the next annual meeting of stockholders and until the director’s successor is duly elected and qualified or until the director’s earlier resignation or removal. The NCG Committee and our Board of Directors may consider any factors they deem relevant in deciding whether to accept a director’s resignation.
The Board of Directors unanimously recommends a voteFOReach of its nominees, Kelly A. Ayotte, Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Dr. Jacob A. Frenkel, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Owen D. Thomas, Martin Turchin and David A. Twardock. Properly authorized proxies solicited by the Board of Directors will be votedFOReach of the nominees unless instructions to the contrary are given.
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PROPOSAL 1: ELECTION OF DIRECTORS
INFORMATION REGARDING THE NOMINEES AND EXECUTIVE OFFICERS
The following biographical descriptions set forth certain information with respect to the nominees for election as directors at the annual meeting and the executive officers who are not directors,presented below, based on information furnished to Boston Properties by each nominee and executive officer. Each executive officer holds office until the regular meeting of the Board of Directors following the next annual meeting of stockholders and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal.
The biographical description below Information for each nominee includes the specific experience, qualifications, attributesMessrs. Thomas and skills that led to the conclusion by our BoardLinde is included above under “Proposal I: Election of Directors that such person should serve as a director of Boston Properties.
– Nominees for ElectionElection”beginning on page 9.
Raymond A. | ||
Ritchey
Age 69 |
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• Various positions at Boston Properties since 1980, including Executive Vice President, Head of our Washington, DC Office and National Director of Acquisitions and Development and Senior Vice President andCo-Manager of our Washington, DC office | ||
• Joined Boston Properties in 1980, leading our expansion to become one of the dominant real estate firms in the Washington, DC metropolitan area | ||
• A leading commercial real estate broker in the Washington, DC area with Coldwell Banker from 1976 to 1980 | ||
• President of the Board of Spanish Education Development (SED) Center | ||
• Member of the Federal City Council and The Economic Club of Washington | ||
• Founding member of the National Association of Industrial and Office Properties (NAIOP), Northern Virginia | ||
• Chair of the JDRF Real Estate Games | ||
• Active volunteer with numerous civic, charitable, and real estate industry organizations | ||
• Professional honors include: ULI Lifetime Achievement Award; Man of the Year, CREW; Brendan McCarthy Award, GWCAR; Good Scout of the Year, Boy Scouts; Trendsetter of the Year, Transwestern; Developer of the Year (numerous organizations); and Junior Achievement Man of the Year | ||
• Graduate of the U.S. Naval Academy and U.S. Naval Post Graduate School in Monterey, California
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Michael E. LaBelle Executive Vice Age 56 | • Executive Vice President, Chief Financial Officer and Treasurer of Boston Properties since January 2016, with responsibility for overseeing the | |
• Various positions at Boston Properties since March 2000, including Senior Vice President, Chief Financial Officer and Treasurer from | ||
• Former Vice President & Relationship Manager with Fleet National Bank from 1991 to 2000, with the | ||
• Former Associate National Bank Examiner with the | ||
• Member of the | ||
• Received a |
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• Various positions at Boston Properties | ||
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• Received a BA in Business Administration from | ||
Bryan J. Koop Executive Vice Age 61 | • Executive Vice President, Boston Region of Boston Properties since January 2016, with responsibility for overseeing the operation of our existing regional portfolio in the Boston area, which includes the Prudential Center and Kendall Center and developing new business opportunities in the area | |
• Senior Vice President and Regional Manager of our Boston office from 1999 to 2016 | ||
• Various positions at Trammell Crow Company from 1982 to 1999, where his career covered high-rise office building leasing and the development of commercial office buildings and shopping centers, including Managing Director and Regional Leader for Trammell Crow Company’s New England region, with responsibility for all commercial office and shopping center operations. | ||
• Director of the Massachusetts Chapter of NAIOP, the Boston Green Ribbon Commission and the Kendall Square Association | ||
• Former chairman of the Back Bay Association | ||
• Received a BBA and an MBA from Texas Christian University | ||
Robert E. Pester Executive Vice Age 63 | • Executive Vice President, San Francisco Region of Boston Properties since January 2016, with responsibility for overseeing existing operations in San Francisco and our other Bay Area properties on the Peninsula and in Silicon Valley, and developing new business opportunities in the area | |
• Senior Vice President and Regional Manager of our San Francisco office from 1998 to 2016 | ||
• Executive Vice President and Chief Investment Officer of Bedford Property Investors, a REIT in Lafayette, California, where he led the acquisitions and development program from 1994 to 1998 | ||
• President of Bedford Property Development, a private West Coast development concern that held more than $2 billion in real estate assets from 1989 to 1998 | ||
• A leading commercial real estate broker with Cushman & Wakefield in northern California, from 1980 to 1989, where he last served as Vice President | ||
• Received a BA in Economics and Political Science from the University of California at Santa Barbara |
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3› | EXECUTIVE OFFICERS |
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Age 73 |
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• Senior Vice President and Regional Manager of our New York office from January 2014 to January 2016 | ||
• Chairman of CBRE, Inc. for the | ||
• Joined the Edward S. Gordon Company, which was subsequently merged into CBRE, in 1986, where he developed and | ||
• Spent eight years at | ||
• Frequent speaker on commercial real estate in New York valued for his insight linking economic trends and | ||
• Chairman of | ||
• Received a | ||
• Studied international economics at the Graduate Institute of International Studies, Geneva | ||
Frank D. Burt Senior Vice Age 61 | • Senior Vice President, Chief Legal Officer and Secretary of Boston Properties since 2003, with responsibility for overseeing the legal and risk management departments | |
• Various positions at Boston Properties since 1986; represented Boston Properties in the acquisition of the Prudential Center in Boston and the Embarcadero Center in San Francisco, as well as in the development activities at the Prudential Center | ||
• Former attorney in the real estate department at Nutter, McClennen & Fish in Boston | ||
• Member of the American College of Real Estate Lawyers and the Boston Bar Association | ||
• Speaker for the American College of Real Estate Lawyers, the Association of Corporate Counsel, Massachusetts Continuing Legal Education, NAIOP and Nareit | ||
• Received a BA, magna cum laude, from Brown University and a JD, cum laude, from the University of Pennsylvania Law School | ||
Michael R. Walsh Senior Vice Age 53 | • Senior Vice President, Chief Accounting Officer of Boston Properties since May 2016, with responsibility for overseeing financial reporting, property accounting and tax compliance and providing transactional support on capital markets activity | |
• Executive Vice President, Chief Financial Officer and Treasurer of Paramount Group, Inc., a REIT focused on Class A office properties in New York City, Washington, DC and San Francisco, from March 2015 to March 2016 | ||
• Various positions at Boston Properties from 1986 to 2015, including Senior Vice President, Finance and Capital Markets with responsibility for overseeing its accounting, financial reporting, financial analysis and tax functions and participated extensively in investor relations matters | ||
• Member of Nareit’s Best Financial Practices Council | ||
• Received a BS, magna cum laude, from Eastern Nazarene College |
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PROPOSAL 1: ELECTION OF DIRECTORS
Executive Officers who are not Directors
Raymond A. Ritcheyserves as Senior Executive Vice President. Prior to his appointment to this position in January 2016, Mr. Ritchey served as Executive Vice President, Head of our Washington, D.C. Office and National Director of Acquisitions and Development since April 1998 and Senior Vice President andCo-Manager of our Washington, D.C. office. Mr. Ritchey is responsible for all business development, leasing and marketing as well as new opportunity origination in the Washington, D.C. area. He also directly oversees similar activities on a national basis. Mr. Ritchey joined us in 1980, leading our expansion to become one of the dominant real estate firms in the Washington, D.C. metropolitan area. For four years prior to joining us, Mr. Ritchey was one of the leading commercial real estate brokers in the Washington, D.C. area with Coldwell Banker. Mr. Ritchey is the President of the Board of Spanish Education Development (SED) Center; a member of the Federal City Council; a member of The Economic Club of Washington; Founding member of the National Association of Industrial and Office Properties (NAIOP), Northern Virginia; Chair of the JDRF Real Estate Games; and an active volunteer with numerous civic, charitable, and real estate industry organizations. A sampling of Mr. Ritchey’s professional honors include: ULI Lifetime Achievement Award; Man of the Year, CREW; Brendan McCarthy Award, GWCAR; Good Scout of the Year, Boy Scouts; Trendsetter of the Year, Transwestern; Developer of the Year (numerous organizations); Junior Achievement Man of the Year. He is a graduate of the U.S. Naval Academy and a graduate of the U.S. Naval Post Graduate School in Monterey, California. He is 67 years old.
Michael E. LaBelleserves as Executive Vice President, Chief Financial Officer and Treasurer. Prior to his appointment to this position in January 2016, Mr. LaBelle served as Senior Vice President, Chief Financial Officer and Treasurer since November 2007 and he also served as Senior Vice President, Finance from February 2005 to November 2007. In his current role, Mr. LaBelle oversees the finance, accounting, tax, information systems, internal audit and investor relations departments and is also responsible for capital raising, treasury management, credit underwriting, financial strategy and planning. Prior to joining us in March 2000, Mr. LaBelle held the position of Vice President & Relationship Manager with Fleet National Bank for nine years with the responsibility of financing large-scale commercial real estate developments. He started his career as an Associate National Bank Examiner with the Office of the Comptroller of the Currency in New York City specializing in commercial real estate debt portfolio analysis and valuation in commercial banks located throughout theMid-Atlantic and Northeastern United States. Mr. LaBelle is on the National Advisory Board for the University of Colorado Real Estate Center. Mr. LaBelle holds a BS degree in Economics from the University of Colorado. He is 53 years old.
Peter D. Johnstonserves as Executive Vice President, Washington, D.C. Region. Prior to his appointment to this position in January 2016, Mr. Johnston served as Senior Vice President and Regional Manager of our Washington, D.C. office. He is in charge of all operations including project development, leasing, construction, property management and administrative activities for our Washington, D.C. office, with a staff of approximately 181 people. Mr. Johnston joined the Company in 1987. In 1989 he was promoted to Project Manager, with subsequent promotions in 1991 to Vice President and in 1997 to Senior Vice President. In 2003 he was appointed head of the development team in the Washington, D.C. Region and held this position until his promotion in September 2005 to the position of Regional Manager. Mr. Johnston has been responsible for more than eight million square feet of new development and renovation projects. He is a past member of the board of directors of the Northern Virginia Chapter of NAIOP. Mr. Johnston received a BA in Business Administration from Roanoke College, an MA from Hollins College and an MBA from the University of Virginia. He is 59 years old.
Bryan J. Koopserves as Executive Vice President, Boston Region. Prior to his appointment to this position in January 2016, Mr. Koop served as Senior Vice President and Regional Manager of our Boston office since 1999. Mr. Koop is responsible for overseeing the operation of our existing regional
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PROPOSAL 1: ELECTION OF DIRECTORS
portfolio in the Boston area, which includes the Prudential Center and Kendall Center. He is also responsible for developing new business opportunities in the area. Prior to joining us in 1999, Mr. Koop served at Trammell Crow Company from 1982 to 1999 where his career covered high-rise office building leasing and the development of commercial office buildings and shopping centers. From 1993 to 1999, his position was Managing Director and Regional Leader for Trammell Crow Company’s New England region, which included all commercial office and shopping center operations. Mr. Koop is a member of the Board of Directors for the Massachusetts Chapter of NAIOP, the Boston Green Ribbon Commission and the Kendall Square Association and previously served as chairman of the Back Bay Association. Mr. Koop received a BBA and an MBA from Texas Christian University. He is 59 years old.
Robert E. Pesterserves as Executive Vice President, San Francisco Region. Prior to his appointment to this position in January 2016, Mr. Pester served as Senior Vice President and Regional Manager of our San Francisco office since 1998. Mr. Pester is responsible for overseeing existing operations in San Francisco and our other Bay Area properties on the Peninsula and in Silicon Valley, and developing new business opportunities in the area. Prior to joining us in 1998, he served as Executive Vice President and Chief Investment Officer of Bedford Property Investors, a real estate investment trust in Lafayette, CA, where he led the acquisitions and development program. Prior to 1994, he was President of Bedford Property Development, a private West Coast development concern that held more than $2 billion in real estate assets. From 1980 to 1989, he was a leading commercial real estate broker with Cushman & Wakefield in northern California, where he last served as Vice President. He is a graduate of the University of California at Santa Barbara with a BA in Economics and Political Science. He is 61 years old.
John F. Powers serves as Executive Vice President, New York Region. He oversees all aspects of our New York and Princeton, New Jersey activities, including development, acquisitions, leasing and building operations. Prior to joining us on January 2, 2014 as Senior Vice President and Regional Manager of our New York office, he served from 2004 as Chairman of CBRE, Inc. for the New YorkTri-State Region overseeing the strategic direction of CBRE’sTri-State operations. He joined the Edward S. Gordon Company, which was subsequently merged into CBRE, in 1986 after working eight years at Swiss Bank Corp (now UBS). At ESG, he developed and managed the Consulting Division into a strong and integral part of the firm’s service delivery platform, which facilitated its sustained leadership in the Manhattan office leasing market. He also brokered millions of square feet of transactions, representing both tenants and landlords, led numerous strategic consulting assignments for large corporate occupiers and advised on manyground-up developments. He is a frequent speaker on commercial real estate in New York valued for his insight linking economic trends and conditions to their eventual impact on the office market. He received a BA in Mathematics from St. Anselm College, an MA in Economics from the University of Massachusetts and an MBA from the University of Massachusetts. He also studied international economics at the Graduate Institute of International Studies, Geneva. He is 71 years old.
Frank D. Burtserves as Senior Vice President, General Counsel and Secretary, positions he has held since 2003. He is responsible for overseeing the legal and risk management departments. Mr. Burt has served in various capacities since he joined us in 1986, and he represented us in the acquisition of the Prudential Center in Boston and the Embarcadero Center in San Francisco, as well as in the development activities at the Prudential Center. He previously worked in the real estate department at Nutter, McClennen & Fish in Boston. Mr. Burt is a member of the American College of Real Estate Lawyers and the Boston Bar Association and a speaker for the American College of Real Estate Lawyers, the Association of Corporate Counsel, Massachusetts Continuing Legal Education, NAIOP and Nareit. Mr. Burt received a BA, magna cum laude, from Brown University and a JD, cum laude, from the University of Pennsylvania Law School. He is 59 years old.
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PROPOSAL 1: ELECTION OF DIRECTORS
Michael R. Walshserves as Senior Vice President, Chief Accounting Officer. He is responsible for overseeing financial reporting, property accounting and tax compliance and is also responsible for providing transactional support on capital markets activity. Prior to his appointment to this position in May 2016, Mr. Walsh served as Executive Vice President, Chief Financial Officer and Treasurer of Paramount Group, Inc. (“Paramount”), a real estate investment trust focused on Class A office properties in New York City, Washington, D.C. and San Francisco, from March 2015 to March 2016. Before joining Paramount, Mr. Walsh was the Senior Vice President, Finance and Capital Markets at Boston Properties where he served in various capacities since 1986. While at Boston Properties, he was most recently responsible for overseeing its accounting, financial reporting, financial analysis and tax functions and participated extensively in investor relations matters. Mr. Walsh received a BS, magna cum laude, from Eastern Nazarene College. He is 51 years old.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 25
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The table below shows the amount of common stock of Boston Properties, Inc. and units of partnership interest in our Operating Partnership beneficially owned as of February 1, 201815, 2020 by:
each director;
all directors nominees for director and executive officers of Boston Properties as a group; and
each person known by Boston Properties to be the beneficial owner of more than 5% of our outstanding common stock.
On February 1, 2018,15, 2020, there were:
154,904,043 shares of our common stock outstanding;
16,791,848 common units of partnership interest in our Operating Partnership (“common units”) outstanding (other than the common units held by Boston Properties), each of which is redeemable for one share of Boston Properties’ common stock (if Boston Properties elects to issue common stock rather than pay cash upon such redemption);
1,368,429 long term incentive units of partnership interest in our Operating Partnership (“LTIP units”) outstanding that were issued as part of our long-term incentive (“LTI”) program, excluding LTIP units issued pursuant to 2018 Multi-Year Long-Term Incentive Program (“MYLTIP”) awards, 2019 MYLTIP awards and 2020 MYLTIP awards, each of which, upon the satisfaction of certain conditions, is convertible into one common unit; and
61,090 deferred stock units outstanding.
All references in this proxy statement to LTIP units exclude LTIP units issued pursuant to 20152018 MYLTIP awards, 20162019 MYLTIP awards and 20172020 MYLTIP awards because theirthe three-year performance periods of these awards had not ended by February 1, 2018.15, 2020. LTIP units issued pursuant to 20152018 MYLTIP awards, 20162019 MYLTIP awards and 20172020 MYLTIP awards are collectively referred to herein as “Performance“Unearned Performance Awards.” None of our directors or NEOs beneficially owns preferred units or shares of our preferred stock.
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PRINCIPAL AND MANAGEMENT STOCKHOLDERS
4› | PRINCIPAL AND MANAGEMENT STOCKHOLDERS |
Common Stock | Common Stock and Units | Common Stock | Common Stock and Units | |||||||||||||||||||||||||||||
Name and Address of Beneficial Owner* | Number of Shares Beneficially Owned(1) | Percent of Common Stock(2) | Number of Shares and Units Beneficially Owned(1) | Percent of Common Stock and Units(3) | Number of Shares Beneficially Owned(1) | Percent of Common Stock(2) | Number of Shares and Units Beneficially Owned(1) | Percent of Common Stock and Units(3) | ||||||||||||||||||||||||
Directors, Nominees for Director and Named Executive Officers | ||||||||||||||||||||||||||||||||
Directors and Named Executive Officers | Directors and Named Executive Officers |
| ||||||||||||||||||||||||||||||
Kelly A. Ayotte | — | ** | — | ** | 80 | * | * | 2,267 | * | * | ||||||||||||||||||||||
Bruce W. Duncan | — | ** | 2,063 | ** | — | * | * | 4,250 | * | * | ||||||||||||||||||||||
Karen E. Dykstra | 3,477 | ** | 4,002 | ** | 5,689 | * | * | 6,214 | * | * | ||||||||||||||||||||||
Carol B. Einiger | 16,563 | ** | 21,636 | ** | 19,207 | * | * | 26,467 | * | * | ||||||||||||||||||||||
Jacob A. Frenkel(7) | 1,013 | ** | 7,445 | ** | ||||||||||||||||||||||||||||
Diane J. Hoskins(8) | 1,140 | * | * | 1,140 | * | * | ||||||||||||||||||||||||||
Joel I. Klein | 4,068 | ** | 8,231 | ** | 6,642 | * | * | 12,992 | * | * | ||||||||||||||||||||||
Douglas T. Linde(9) | 289,287 | ** | 428,612 | ** | ||||||||||||||||||||||||||||
Matthew J. Lustig(10) | 5,116 | ** | 12,137 | ** | ||||||||||||||||||||||||||||
Alan J. Patricof(11) | 36,268 | ** | 41,341 | ** | ||||||||||||||||||||||||||||
Douglas T. Linde(10) | 259,860 | * | * | 513,574 | * | * | ||||||||||||||||||||||||||
Matthew J. Lustig(11) | 7,173 | * | * | 16,381 | * | * | ||||||||||||||||||||||||||
Owen D. Thomas(12) | 63,399 | ** | 171,280 | ** | 63,488 | * | * | 340,708 | * | * | ||||||||||||||||||||||
Martin Turchin(13) | 25,622 | ** | 27,633 | ** | ||||||||||||||||||||||||||||
David A. Twardock(14) | 30,746 | ** | 30,746 | ** | ||||||||||||||||||||||||||||
David A. Twardock(13) | 5,999 | * | * | 5,999 | * | * | ||||||||||||||||||||||||||
William H. Walton, III(14) | 465 | * | * | 1,605 | * | * | ||||||||||||||||||||||||||
Raymond A. Ritchey(15) | 96,802 | ** | 415,256 | ** | — | * | * | 338,725 | * | * | ||||||||||||||||||||||
Michael E. LaBelle(16) | 26,452 | ** | 96,943 | ** | 28,479 | * | * | 136,817 | * | * | ||||||||||||||||||||||
Bryan J. Koop(17) | 21,535 | ** | 80,837 | ** | 15,919 | * | * | 73,182 | * | * | ||||||||||||||||||||||
All directors and executive officers as a group (19 persons)(18) | 698,442 | ** | 1,512,469 | ** | 470,507 | * | * | 1,687,979 | * | * | ||||||||||||||||||||||
5% Holders | ||||||||||||||||||||||||||||||||
The Vanguard Group(19) | 22,607,980 | 14.65% | 22,607,980 | 13.14% | 20,235,548 | 13.06 | % | 20,235,548 | 11.69 | % | ||||||||||||||||||||||
BlackRock, Inc.(20) | 15,489,489 | 10.04% | 15,489,489 | 9.00% | 15,053,881 | 9.72 | % | 15,053,881 | 8.70 | % | ||||||||||||||||||||||
Vanguard Specialized Funds – Vanguard REIT Index Fund(21) | 10,390,045 | 6.73% | 10,390,045 | 6.04% | ||||||||||||||||||||||||||||
Norges Bank (The Central Bank of Norway)(21) | 13,037,554 | 8.42 | % | 13,037,554 | 7.53 | % | ||||||||||||||||||||||||||
State Street Corporation(22) | 8,652,221 | 5.61% | 8,652,221 | 5.03% | 9,721,252 | 6.28 | % | 9,721,252 | 5.62 | % | ||||||||||||||||||||||
FMR LLC(23) Abigail P. Johnson | 8,393,936 | 5.44% | 8,393,936 | 4.88% | ||||||||||||||||||||||||||||
Norges Bank (The Central Bank of Norway)(24) | 8,153,590 | 5.28% | 8,153,590 | 4.74% |
* | Unless otherwise indicated, the address is c/o Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103. |
** | Less than 1%. |
(1) | The number of shares of common stock “beneficially owned” by each beneficial owner is determined under rules issued by the SEC regarding the beneficial ownership of securities. This information is not necessarily indicative of beneficial ownership for any other purpose. “Number of Shares Beneficially Owned” includes (a) shares of common stock that may be acquired upon the exercise of options that are exercisable on or within 60 days after February |
BOSTON PROPERTIES, INC. |2018 Proxy Statement 27
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
common units, as applicable) have the right to redeem |
(2) | The total number of shares outstanding used in calculating this percentage assumes (a) the exercise of all options to acquire shares of common stock that are exercisable on or within 60 days after February |
(3) | The total number of shares outstanding used in calculating this percentage assumes (a) that all common units and LTIP units are presented (assuming conversion in full into common units, if applicable) to the Operating Partnership for redemption and are acquired by Boston Properties for shares of common stock, (b) does not separately include outstanding common units held by Boston Properties, as these common units are already reflected in the denominator by the inclusion of all outstanding shares of common stock, (c) the exercise of all options to acquire shares of common stock that are exercisable on or within 60 days after February |
38 | | 2020 Proxy Statement |
4› | PRINCIPAL AND MANAGEMENT STOCKHOLDERS |
(4) | Represents |
(5) | Represents, only under the “Number of Shares and Units Beneficially Owned” column, 4,250 LTIP units (of which 1,140 LTIP units are subject to vesting). Excludes 1,066 deferred stock units, the receipt of which has been deferred to a date later than 60 days after February 15, 2020, pursuant to a specific deferral election (see“Compensation of Directors – Deferred Compensation Program”on page 41). |
Includes |
Represents |
(8) | Represents |
(9) | Represents 6,642 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, |
Includes |
Represents |
(12) | Includes |
(13) | Includes |
(14) | Includes 465 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, |
(15) |
|
28 BOSTON PROPERTIES, INC. |2018 Proxy Statement
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
trustee, and |
(16) | Includes |
(17) | Includes 585 shares of common stock held directly and |
(18) | Includes an aggregate of |
(19) | Information regarding The Vanguard Group (“Vanguard”) is based solely on a Schedule 13G/A filed by Vanguard with the SEC on February |
(20) | Information regarding BlackRock, Inc. (“BlackRock”) is based solely on a Schedule 13G/A filed by BlackRock with the SEC on |
(21) | Information regarding |
(22) | Information regarding State Street Corporation (“State Street”) is based solely on a Schedule 13G filed by State Street with the SEC on February |
| 2020 Proxy Statement | 39 |
5› | COMPENSATION OF DIRECTORS |
Ournon-employee director compensation is intended to attract, retain and appropriately compensate highly qualified individuals to serve on our Board of Directors. At our 2019 annual meeting of stockholders, our stockholders approved the Boston Properties, Inc.Non-Employee Director Compensation Plan (the “Director Compensation Plan”), effective January 1, 2019. The Director Compensation Plan sets forth the cash and equity compensation that is to be paid to ournon-employee directors in a specific, formulaic manner.
Our directors who are also employees receive no additional compensation for their services as directors.
COMPONENTS OF DIRECTOR COMPENSATION
› CASH COMPENSATION
During 2019, we paid ournon-employee directors the following cash compensation pursuant to the Director Compensation Plan:
Role | Annual Cash Retainer($)(1) | |||
AllNon-Employee Directors for Board Services | 85,000 | |||
Chairman of the Board(2) | 100,000 | |||
Chair of the Audit Committee(2) | 20,000 | |||
Members of the Audit Committee | 15,000 | |||
Chairs of other standing committees(2)(3) | 15,000 | |||
Members of other standing committees(3) | 10,000 |
The sum of all cash retainers are payable in quarterly installments in arrears, subject to proration for periods of service less than a full quarter in length. |
(2) | The retainer payable to the Chairman is in addition to all other retainers to which the Chairman may be entitled and |
(3) | The term “other standing committees” includes the Compensation and |
Under the Director Compensation Plan,non-employee directors do not receive meeting attendance fees for any meeting of our Board of Directors or a committee thereof that he or she attends.Non-employee directors also are reimbursed for reasonable expenses incurred to attend Board of Directors and committee meetings.
› EQUITY COMPENSATION
The Director Compensation Plan provides for grants of equity tonon-employee directors as follows:
Annual Grant. Each continuingnon-employee director is entitled to receive, on the fifth business day after the annual meeting of stockholders, an annual equity award with an aggregate value of $150,000.
Initial Grant. Any newnon-employee director that is appointed to our Board of Directors other than at an annual meeting of stockholders would be entitled to receive, on the fifth business day after the appointment, an initial equity award with an aggregate value of $150,000 (prorated based on the number of months from the date the director is first appointed to our Board of Directors to the first anniversary of the Company’s most recently held annual meeting of stockholders).
Annual and initial equity awards are made in the form of shares of restricted common stock, or, if offered by the Board of Directors and elected by such director, LTIP units (or a combination of both).
40 | | 2020 Proxy Statement |
5› | COMPENSATION OF DIRECTORS |
The actual number of shares of restricted common stock or LTIP units that we grant is determined by dividing the fixed value of the grant by the closing market price of our common stock on the NYSE on the grant date.
Annual and initial grants of LTIP units and restricted common stock will vest 100% on the earlier of (1) the first anniversary of the grant date and (2) the date of the next annual meeting of stockholders.
Accordingly, on May 29, 2019, Mses. Ayotte, Einiger, Dykstra and Hoskins and Messrs. Duncan, Klein, Lustig, Twardock and Walton each received 1,140 LTIP units or shares of restricted common stock.
Non-employee directors may elect, in accordance with the Boston Properties, Inc. 2012 Stock Option and Incentive Plan (the “2012 Plan”) and our Amended and Restated Rules and Conditions for Directors’ Deferred Compensation Program (the “Directors’ Deferred Compensation Program”), to defer all cash retainers payable to such director and to receive his or her deferred cash compensation in the form of our common stock or in cash following the director’s retirement from our Board of Directors. Each director is credited with the number of deferred stock units determined by dividing the amount of the cash compensation deferred during each calendar quarter by the closing market price of our common stock on the NYSE on the last trading day of the quarter. Hypothetical dividends on the deferred stock units are “reinvested” in additional deferred stock units based on the closing market price of the common stock on the cash dividend payment date. Payment of a director’s account may be made in either a lump sum of shares of our common stock equal to the number of deferred stock units in a director’s account or in ten annual installments following the director’s retirement from our Board of Directors. In addition,non-employee directors who elect a deferred payout following their retirement from the Board may elect to change their notional investment from our common stock to a deemed investment in one or more measurement funds. This election to convert may only be made after the director’s service on the Board ends, the conversion date must be at least 180 days after the latest issuance date of deferred stock units credited to the director’s account, the election is irrevocable and the director must convert 100% of his or her deferred stock account if any is converted. Payment of a director’s account that has been converted to measurement funds will be in cash instead of shares of our common stock. The measurement funds available to directors are the same as those available to our executives under our Nonqualified Deferred Compensation Plan. See“Compensation of Executive Officers – Nonqualified Deferred Compensation” on page 72.
DIRECTOR STOCK OWNERSHIP GUIDELINES
Our Board believes it is important to align the interests of the directors with those of the stockholders and for directors to hold equity ownership positions in Boston Properties. Accordingly, eachnon-employee director is expected to retain an aggregate number of shares of common stock of the Company, deferred stock units (and related dividend equivalent rights) in the Company, and LTIP units, and common units in the Operating Partnership, whether vested or not, equal to at least five (5) times the value of the then current annual cash retainer paid tonon-employee directors for their service on the Board, without respect to service on committees of the Board or as lead independent director or Chairman. Eachnon-employee director, until such director complies with the ownership guidelines set forth above, is expected to retain all equity awards granted by the Company or the Operating Partnership (less amounts sufficient to fund any taxes owed relating to such equity awards). The deferred stock units (and related dividend equivalent rights) in the Company and LTIP units and common units in the Operating Partnership shall be valued by reference to the market price of the number of shares of common stock of the Company issuable upon the settlement or exchange of such units assuming that all conditions necessary for such settlement or exchange have been met. For shares of common stock of the Company or equity valued by reference to common stock of the Company for purposes of these ownership guidelines, the market price of the common stock of the Company used to value such equity shall be the greater of (1) the market price on the date of purchase or grant of such equity or (2) the market price as of the date compliance with these ownership guidelines is measured.
| 2020 Proxy Statement | 41 |
5› | COMPENSATION OF DIRECTORS |
The following table summarizes the compensation earned by ournon-employee directors during the year ended December 31, 2019.
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Total($) | |||||||||
Kelly A. Ayotte | 105,000 | 135,000 | 240,000 | |||||||||
Bruce W. Duncan | 139,190 | 135,000 | 274,190 | |||||||||
Karen E. Dykstra | 110,000 | 150,000 | 260,000 | |||||||||
Carol B. Einiger | 100,852 | 135,000 | 235,852 | |||||||||
Dr. Jacob A. Frenkel(3) | 37,060 | — | 37,060 | |||||||||
Diane J. Hoskins | 58,200 | 150,000 | 208,200 | |||||||||
Joel I. Klein | 185,000 | 135,000 | 320,000 | |||||||||
Matthew J. Lustig | 120,000 | 135,000 | 255,000 | |||||||||
Martin Turchin(3) | 39,011 | — | 39,011 | |||||||||
David A. Twardock | 130,000 | 150,000 | 280,000 | |||||||||
William H. Walton, III | 61,264 | 135,000 | 196,264 |
(1) | Mses. Ayotte and Einiger and Messrs. Duncan, Klein, Lustig, Turchin, Twardock and Walton deferred their cash fees earned during 2019 and received in lieu thereof deferred stock units. The following table summarizes the deferred stock units credited to the director accounts during 2019. |
Name | Deferred Stock Units Earned During 2019 (#) | |||
Kelly A. Ayotte | 790.07 | |||
Bruce W. Duncan | 1,048.22 | |||
Carol B. Einiger | 758.94 | |||
Joel I. Klein | 1,394.75 | |||
Matthew J. Lustig | 928.49 | |||
Martin Turchin(3) | 292.38 | |||
David A. Twardock | 981.00 | |||
William H. Walton, III | 459.26 |
(2) | Represents the total fair value of common stock and LTIP unit awards granted tonon-employee directors in 2019, determined in accordance with the |
(3) | Messrs. Frenkel and Turchin retired from the Board of Directors as of May 21, 2019. On May 21, 2019, the Company issued 17,949 shares of common stock |
42 | | 2020 Proxy Statement |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the executive officers and directors of Boston Properties, and persons who own more than ten percent of a registered class of Boston Properties’ equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE. Officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish Boston Properties with copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations that no other reports were required during the fiscal year ended December 31, 2017, all Section 16(a) filing requirements applicable to our executive officers, directors and greater than ten percent beneficial owners were timely satisfied.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 29
6› | COMPENSATION DISCUSSION AND ANALYSIS | |
I. EXECUTIVE OVERVIEW |
COMPENSATION DISCUSSION AND ANALYSIS
In thisThis “Compensation Discussion and Analysis,” or “CD&A,” references to (1)sets forth our philosophy and objectives regarding the compensation of our named executive officers (“NEOs”), including how we determine the elements and amounts of executive compensation. When we use the term “Committee” in this CD&A, we mean the Compensation Committee of the Board of Directors of Boston Properties, Inc. and (2) “executive compensation” mean primarily the Committee’s decisions regarding the compensation of our named executive officers (“NEOs”). Our NEOs for 2017 were Messrs. Thomas, Linde, Ritchey, LaBelle and Koop.
Introduction
We are one of the largest owners, managers and developers of office properties in the United States, concentrated in Boston, New York, San Francisco, Washington, D.C. and Los Angeles. We have a demonstrated history of creating long-term shareholder value in large part because we take on complex, technically challenging development projects, leveraging the skills of our management team to successfully develop and reposition properties that other organizations may not have the capacity or resources to pursue. Some of our most successful development projects have taken longer than a decade to acquire, construct andlease-up to stabilization. In addition, we seek to sign long-term leases with creditworthy tenants, and we generally seek long-term fixed-rate financing in order to lock in our interest expense and proactively manage our debt maturities. We recognize that our business is thus long-term in nature, and our success requires that we make business decisions with a focus on our long-term objectives, even if they have short-term negative implications.
As a result, our Committee strives to make compensation decisions that reward management for executing our strategy and promoting the best interests of the Company and its stockholders over the long term. Our market focus and strategy for creating long-term value for investors differ from many of our competitors in the office REIT segment, which makes direct comparisons in performance and compensation difficult. We therefore do not rely on a strict formulaic framework for measuring performance against short-term goals to determine compensation awards for a particular year, but instead aim for a balanced quantitative and qualitative approach, as outlined below, that our Committee believes is appropriate to ensure our continued success.
Process for Determining Executive Compensation
Following strong stockholder support in 2017 on our“Say-on-Pay” advisory vote, and the overall positive feedback we received in our communications with investors throughout the year, our Committee continues to use the same general process when setting executive compensation, which includes:
30 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
I. EXECUTIVE SUMMARY
We do not rely on a strict formulaic framework for measuring performance against short-term goals to determine compensation awards for a particular year. The Committee believes that combining a quantitative and a qualitative assessment againstpre-established goals allows it to:
Investor Outreach and Results of 2017“Say-on-Pay” Advisory Vote
The following is a snapshot of our investor outreach and the results of our recentSay-on-Pay votes:
In addition to our usual investor outreach, our Board invitedbuy-side and sell-side representatives to make presentations to our Board on the REIT capital markets, investing in REITs generally, and fund flows, as well as to provide commentary on our Company and its perception among analysts and investors.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 31
COMPENSATION DISCUSSION AND ANALYSIS
I. EXECUTIVE SUMMARY
2017 Performance Highlights
In addition to management meeting or exceeding the set of corporate goals established at the beginning of the year, as detailed in “– III. Assessing Performance –2017 Corporate Goals” below, highlights of our 2017 performance include the following:2019 were:
Michael E. LaBelle | Bryan J. Koop | |||||||
Executive Vice President, Chief Financial Officer and | Executive Vice President, Boston Region |
›POLICY CHANGES TO COMPENSATION PROGRAM
During 2019, based on feedback received from investors following the voting results on our 2019Say-on-Pay resolution and in connection with the onboarding of, and advice received from, Frederic W. Cook & Co., Inc. (“FW Cook”), the Committee’s new compensation consultant, the Committee made significant changes to the design and structure of our executive compensation program.
Engaged FW Cook as New Consultant(April 2019)Annual Meeting Say-on-Pay Results(May 2019)Investor Outreach(July Oct. 2019)Evaluated Feedback & Advice;Modified & Improved Policies2019Pensation"Increased performance-based equity allocation"Decreased cash compensation2020 CompensationEstablished new 2020 Annual Incentive Plan
At our 2019 annual meeting, our stockholders voted on anon-binding, advisory resolution to ratify the compensation paid to our NEOs (the“Say-on-Pay resolution”). Although the core philosophy and design of our compensation program remained materially consistent with prior years, Institutional Shareholder Services (“ISS”), a proxy advisory firm, recommended that its clients vote against our 2019Say-on-Pay resolution and the percentage of votes cast in favor of theSay-on-Pay resolution decreased from approximately 91% at our 2018 annual meeting to approximately 67% at our 2019 annual meeting. The outcome of the vote in 2019 was sufficient to approve the resolution, but the level of support was less than we expected, less than we received on ourSay-on-Pay resolution in any of the last five years and less than we desire.
In light of the voting results, our Board, led by the Chairman of the Board and the Chair of our Compensation Committee, directly engaged with our larger institutional investors, some of whom voted against theSay-on-Pay resolution, to solicit feedback on our overall executive compensation program and corporate governance and to better understand their individual concerns. After evaluating the feedback received from our investors and the advice of FW Cook, the Committee made policy changes that impacted compensation paid with respect to 2019 and will impact 2020 compensation decisions, including the establishment of the new 2020 Annual Incentive Plan (see“II.Say-on-Pay Results & Investor Outreach” and “VII. New 2020 Annual Incentive Plan”).
As discussed in this CD&A, for 2019, total compensation paid to our CEO did not change from 2018 and, for our NEOs as a group, total compensation was essentially flat compared to 2018 (a decrease of (0.7%)).
| 2020 Proxy Statement | 43 | |||||
| ||||
Highlights of 2017 Compensation Decisions›2019 PERFORMANCE HIGHLIGHTS
The Committee concludeddetermined that the Company, led by itsNEO’s performance in 2019 was strong, particularly given that it followed very strong performance in 2018. Overall, management team, had a strong year in 2017, noting, in particular, our achievements in leasing, executionmet or exceeded the primary corporate goals for 2019 that were established at the beginning of the key NOI drivers, development economicsyear. These goals and development starts. (See “–our NEOs’ performance against each are detailed in “III.V. Assessing Performance– 20172019 Corporate Goals.Goals”) In light below. We believe our NEOs’ overall strong performance in 2019 is reflected in the following highlights:
2019 Performance Highlights | ||||||
11% | 7.6 Million | 9% | 26% | |||
Y-o-Y Growth in Diluted FFO per Share* | Square Feet Leased | Y-o-Y Increase in Cash Dividend | Total Stockholder Return (“TSR”) for 2019 | |||
6.7% | 5.4% | 8th | 5th | |||
Y-o-Y Growth in Same Property NOI (BXP’s Share)** | Y-o-Y Growth in Same Property NOI – Cash (BXP’s Share)** | Consecutive Green Star Recognition from GRESB | Nareit “Leader in the Light Award” since 2014 |
* | Refer to pages 95 through 97 of our Annual Report on Form10-K for the year ended December 31, 2019 for information relating to and the reconciliations of diluted FFO per share to net income attributable to Boston Properties, Inc. common shareholders. |
** | Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI and our share of Same Property NOI – Cash for the fiscal years ended December 31, 2019 and 2018. |
›HIGHLIGHTS OF 2019 COMPENSATION DECISIONS
Based on the Committee’s assessment of the objective and subjective assessments of2019 performance, relative to the corporate goals, performance against our Office Peers and individual performance, and reported and realized NEO compensation, the Committee determined to award 2017awarded total compensation that was unchanged from 2018 for theour CEO and was essentially flat for all NEOs as a group, atgroup. In addition, the Committee (1) reallocated a level that reflects an increaseportion of approximately 11% over 2016 total compensation which based on advice from FPL,cash compensation to long-term incentive (LTI) equity compensation and (2) increased the Committee expects will result in the total compensation awarded to our NEOs ranking slightly above the medianamount of our Benchmarking Peer Group.
As part of its benchmarking review, FPL analyzed the allocation between performance-based and time-based LTIs and, for 2017, the Committee determined that it would be advisable to migrate over time to
32 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
I. EXECUTIVE SUMMARY
an allocation of LTI equity awards for the NEOs that is closer to the 50% - 50% mixcompensation as a percentage of performance-based and time-based LTI equity awards that is widely accepted in the market and prevalent among our peers. The precise allocation will vary among different NEOs and from year to year based on circumstances. (See “–V. Alignment of Pay with Performance” beginning on page 49).
total compensation. The following are highlights of 20172019 compensation:
2017 Pay Highlights | ||||||
CEO: | ||||||
0% | 92% | 71% | 53% | |||
Change in base salary between 2016 - 2018 | Amount of pay that is variable and not guaranteed | Amount paid in equity with remaining 29% paid in cash | Amount ofTSR-based performance equity | |||
All NEOs (as a group): | ||||||
0% | 90% | 64% | 50% | |||
Change in base salaries between 2016 - 2018 | Amount of pay that is variable and not guaranteed | Amount paid in equity with remaining 36% paid in cash | Amount ofTSR-based performance equity |
2019 Compensation Highlights | ||||||||
CEO: | ||||||||
No Change | 93% | 72% | (11.3)% | 55% | ||||
in total compensation from 2018 | of pay that is variable and not guaranteed | paid in equity* with remaining 28% | decrease in cash bonus from 2018 | of total equity awarded as TSR-based performance equity (increase from 50% for 2018*) | ||||
All NEOs (as a group): | ||||||||
(0.7)% | 90% | 64% | (9.9)% | 52% | ||||
decrease in total compensation | of pay that is variable and not guaranteed | paid in equity* with remaining 36% paid in cash | decrease in cash bonus from 2018 | of total equity awarded asTSR-based performance equity |
* | Equity incentives for 2019 performance were granted in 2020, and equity incentives for 2018 performance were granted in 2019. |
BOSTON PROPERTIES, INC. |2018 Proxy Statement 33
44 | | 2020 Proxy Statement |
COMPENSATION DISCUSSION AND ANALYSIS
6› | COMPENSATION DISCUSSION AND ANALYSIS | |
I. EXECUTIVE OVERVIEW |
›COMPENSATION GOVERNANCE
The objectives of our executive compensation program are to attract, retain and reward executives who have the motivation, experience and skills to lead the Company and continue our long-term track record of profitability, growth and TSR. The following are thetable highlights key features of our executive compensation program:program that demonstrate the Company’s ongoing commitment to promoting stockholder interests through sound compensation governance practices.
WHAT WE DO | ||
✓ | The vast majority of total compensation | |
✓ | ||
✓ | We align our NEOs with our long-term investors by awarding a significant percentage | |
✓ | ||
We have a clawback policy that allows for the recovery of previously paid incentive compensation in the event of a financial restatement. | ||
✓ | We have robust stock ownership guidelines for our executives | |
✓ | We engage an independent compensation consultant to advise the |
WHAT WE DON’T DO | ||
We do not provide | ||
We do not allow hedging or pledging of Company securities. | ||
We do not encourage unnecessary or excessive risk taking as a result of our compensation policies; incentive compensation is not based on a single performance metric and we do not have guaranteed minimum payouts. | ||
We do not allow for repricing of stock options. | ||
34 BOSTON PROPERTIES, INC. |2018 Proxy Statement
| 2020 Proxy Statement | 45 |
6› | COMPENSATION DISCUSSION AND ANALYSIS | |
II. SAY-ON-PAY RESULTS & INVESTOR OUTREACH |
II.COMPENSATION DISCUSSION AND ANALYSISSAY-ON-PAY RESULTS & INVESTOR OUTREACH
The following timeline highlights the key events that factored into the Committee’s compensation decisions for 2019 and other policy changes, including the establishment of the new 2020 Annual Incentive Plan:
›HistoricalSay-on-Pay Results
At the 2019 annual meeting of stockholders, our stockholders voted on theSay-on-Pay resolution to ratify the compensation paid to our NEOs. Although the core philosophy and design of our compensation program remained materially consistent with prior years, ISS recommended that its clients vote against our 2019Say-on-Pay resolution and the percentage of votes cast in favor of theSay-on-Pay resolution decreased from approximately 91% at our 2018 annual meeting to approximately 67% at our 2019 annual meeting.
SAY-ON-PAY RESULTS | ||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||
67% | 91% | 92% | 90% | 86% |
The outcome of the vote in 2019 was sufficient to approve the resolution, but the level of support was less than we expected, less than we received on ourSay-on-Pay resolution in any of the last five years and less than we desire.
›Investor Outreach
Stockholder Engagement Process
In light of the voting results on theSay-on-Pay resolution, our Board directly engaged with our larger institutional investors, some of whom voted against the resolution, to solicit feedback and better understand their individual concerns on our overall executive compensation program and corporate governance. Between July and October 2019, one or more of the Chair of our Compensation Committee (Bruce W. Duncan), the Chairman of the Board (Joel I. Klein), a member of the Compensation
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II. SAY-ON-PAY RESULTS & INVESTOR OUTREACH |
Committee (Sen. Kelly A. Ayotte) and the Chair of the NCG Committee (Matthew J. Lustig) met in person with ten (10) of our largest institutional investors representing ownership of more than 40% of the outstanding shares of BXP common stock.
Mr. Duncan attended nine of the ten meetings
Messrs. Duncan and Klein also participated in a teleconference with representatives of ISS to better understand the methodology and key policies underlying its negative voting recommendation, and to discuss potential changes to the overall program
Neither our CEO, nor any other NEO, participated in any of these meetings with investors or ISS
Although our Board sought specific feedback on the topics identified as issues of concern in ISS’ 2019 proxy report on the Company, we did not limit the agenda, and the meetings generally allowed for free-flowing discussions. In addition to executive compensation, these discussions included topics such as:
our strategy and growth drivers,
overall business trends,
Board composition, director tenure, director succession and recruitment, and the process used to conduct Board and committee self-evaluations,
diversity and human capital strategy,
ESG and sustainability, and
corporate governance policies, generally.
All of the feedback received was shared with the full Board of Directors.
Feedback from Stockholders
The general feedback our Board received included support for our strategy, confidence in the strength of our management team and Board, and our demonstrated leadership among REITs in ESG and sustainability. Investors also openly shared their policies and perspectives with respect to our compensation program. Overall, they conveyed that our CEO’s pay and performance were reasonably aligned in 2018 and that our benchmarking peer group included appropriate and high-quality REITs. While acknowledging the limitations inherent in using relative TSR as the performance metric for our MYLTIP program (which is the performance-based component of LTI equity awards) and being open to the use of one or more operational metrics, investors generally support the MYLTIP program as currently designed.
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II. SAY-ON-PAY RESULTS & INVESTOR OUTREACH |
While the general consensus was positive, our investors also offered some specific suggestions to improve our program. The Committee evaluated the feedback received and responded as summarized below.
WHAT WE HEARD | HOW WE RESPONDED | |||
Desire for more objectivity and structure in annual incentive program. Our investors did not insist that we have a formulaic bonus plan that eliminates the application of any discretion by the Committee, but they expressed a preference for more objectivity, including specific weightings ascribed to each measure and transparent disclosure of goals and results. High number of goals used in assessing performance. Due to the high number of performance goals used in assessing performance, investors expressed a desire to better understand which goals were most important and how much the Committee factored them into the compensation decisions. | Adopted new annual incentive plan. The Committee established a new annual incentive plan, effective in 2020, under which our NEOs’ bonuses will be directly linked to performance against goals in three, independent categories. Consistent with feedback from investors, the categories include: • FFO per Share • Leasing • Business/Individual goals For all NEOs except our CFO, each category is equally weighted. See “—VII. New 2020 Annual Incentive Plan.” | |||
Preference forpre-established target and maximum bonus opportunities. Our investors prefer that each NEO have a defined range of bonus opportunities, with a specific target and maximum. | Established target and maximum bonus opportunities. Under the new 2020 Annual Incentive Plan, all NEOs have target and maximum annual cash bonus opportunities, and the performance categories are weighted. See “—VII. New 2020 Annual Incentive Plan.” | |||
Weighting of performance-based awards in annual equity grant mix. Our investors generally accept a50%-50% allocation between performance-based and time-based equity. However, some expressed a preference for a greater allocation to performance-based equity in certain circumstances. | Increased CEO’s performance-based equity allocation to 55%. Considering the overall feedback received from investors, the Committee increased the allocation to performance-based equity from 50% to 55% for equity awards granted to our CEO in 2020 (for 2019 performance). In addition, by reallocating a portion of total compensation from cash compensation to equity, the Committee increased the amount of performance-based LTI as a percentage of total compensation for all NEOs. |
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III. 2019 COMPENSATION DECISIONS |
III. 2019 COMPENSATION DECISIONS
Based on the Committee’s assessment of 2019 performance, investor feedback and the advice of FW Cook, the Committee awarded total compensation that was unchanged from 2018 for our CEO and essentially flat for all NEOs as a group. In addition, the Committee (1) reallocated a portion of total compensation from cash compensation to LTI equity compensation and (2) increased the amount of performance-based LTI equity compensation as a percentage of total compensation. When determining specific individual compensation amounts, the Committee considered the following factors:
• | performance againstpre-established operational, capital and management goals (see “—V. Assessing Performance”), |
individual contributions to overall results and development opportunities,
results of a compensation benchmarking analysis among peers with respect to 2018 compensation, and
anticipated market compensation increases and trends.
The following table presents the total direct compensation of our NEOs, inclusive of salary, bonus and LTI equity awards, for 2019 compared to 2018. LTI equity includes MYLTIP awards whose ultimate value will be determined over a three-year period from the grant date based on our relative TSR. To link annual awards of long-term equity incentive compensation to annual performance, the Committee typically makes equity awards for a particular year in late January or early February of the following year. SEC rules for equity awards (unlike for cash bonuses) require that they be presented as compensation for the year in which the awards were actually granted, and therefore equity awards shown in the Summary Compensation Table presented under “Compensation of Executive Officers” on page 68 lag one year (i.e., awards made in January 2020 to reward performance in 2019 are not reflected in this year’s Summary Compensation Table).
Salary(1) | Cash Bonus | |||||||||||||||||||||||
Executive | 2019 | 2018 | % Change | 2019 | 2018 | % Change | ||||||||||||||||||
Owen D. Thomas | $ | 900,000 | $ | 875,000 | 2.9% | $ | 2,550,000 | $ | 2,875,000 | (11.3)% | ||||||||||||||
Douglas T. Linde | $ | 750,000 | $ | 725,000 | 3.4% | $ | 2,095,000 | $ | 2,180,000 | (3.9)% | ||||||||||||||
Raymond A. Ritchey | $ | 740,000 | $ | 720,000 | 2.8% | $ | 1,820,000 | $ | 2,080,000 | (12.5)% | ||||||||||||||
Michael E. LaBelle | $ | 510,000 | $ | 500,000 | 2.0% | $ | 1,295,000 | $ | 1,450,000 | (10.7)% | ||||||||||||||
Bryan J. Koop | $ | 410,000 | $ | 400,000 | 2.5% | $ | 1,370,000 | $ | 1,550,000 | (11.6)% | ||||||||||||||
Total | $ | 3,310,000 | $ | 3,220,000 | 2.8% | $ | 9,130,000 | $ | 10,135,000 | (9.9)% | ||||||||||||||
LTI Equity Awards | Total Compensation | |||||||||||||||||||||||
Executive | 2019 | 2018 | % Change | 2019 | 2018 | % Change | ||||||||||||||||||
Owen D. Thomas | $ | 9,050,000 | $ | 8,750,000 | 3.4% | $ | 12,500,000 | $ | 12,500,000 | 0% | ||||||||||||||
Douglas T. Linde | $ | 5,655,000 | $ | 5,395,000 | 4.8% | $ | 8,500,000 | $ | 8,300,000 | 2.4% | ||||||||||||||
Raymond A. Ritchey | $ | 4,240,000 | $ | 4,200,000 | 1.0% | $ | 6,800,000 | $ | 7,000,000 | (2.9)% | ||||||||||||||
Michael E. LaBelle | $ | 1,945,000 | $ | 1,950,000 | (0.3)% | $ | 3,750,000 | $ | 3,900,000 | (3.8)% | ||||||||||||||
Bryan J. Koop | $ | 1,370,000 | $ | 1,300,000 | 5.4% | $ | 3,150,000 | $ | 3,250,000 | (3.1)% | ||||||||||||||
Total | $ | 22,260,000 | $ | 21,595,000 | 3.1% | $ | 34,700,000 | $ | 34,950,000 | (0.7)% |
(1) | For 2020 compensation, the Committee did not increase the base salary of any of the NEOs. |
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III. 2019 COMPENSATION DECISIONS |
›2019 PAY MIX
For each NEO, the Committee approved the appropriate level and mix of pay based on his role, responsibilities and performance. The Committee believes that our executive compensation is well-aligned with our stockholders’ interests and in line with the Benchmarking Peer Group (see “VI. Determining Executive Compensation – Benchmarking Peer Group & Compensation Advisor’s Role”). Variable pay, consisting of annual cash bonuses and LTI equity awards, constitutes the vast majority of our executive compensation. For our CEO and NEOs as a group, variable pay for 2019 was 93% and 90%, respectively. This emphasis on variable pay allows the Committee to reward good performance and penalize poor performance.
The following present the allocations of total pay for 2019 among each component of compensation for (1) our CEO and (2) all NEOs as a group:
2019 Pay Mix |
›ALLOCATION OF LTI AWARDS
The Committee approved LTI equity awards to NEOs for 2019 performance as a mix of performance-based MYLTIP awards and time-based, full-value equity awards. The MYLTIP awards were denominated in a fixed number of LTIP units as of February 4, 2020, the date of initial grant. After evaluating the feedback received from investors, the Committee increased the amount of performance-based equity as a percentage of total LTI equity for our CEO so that his allocation was 55% performance-based and 45% time-based. For the other NEOs, the Committee maintained the allocation at 50% performance-based and 50% time-based, which is generally accepted by our investors. In total for 2019, performance-based equity awards for all NEOs represent a greater percentage of total direct compensation than they did for 2018, and the total amount of LTI equity as a percentage of total compensation for all NEOs as a group also increased to 64%.
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The following table sets forth the dollar values of the performance-based and time-based equity awards granted to NEOs in 2020 for performance in 2019:
Executive | Total LTI Equity Awards | Total LTI Equity Awards as % of Total Compensation | Performance- Equity Awards | % of Total Equity Awards | Time-Based LTI Equity Awards | % of Total Equity Awards | ||||||||||||||||||
Owen D. Thomas | $ 9,050,000 | 72% | $ 4,977,500 | 55% | $ 4,072,500 | 45% | ||||||||||||||||||
Douglas T. Linde | $ 5,655,000 | 67% | $ 2,827,500 | 50% | $ 2,827,500 | 50% | ||||||||||||||||||
Raymond A. Ritchey | $ 4,240,000 | 62% | $ 2,120,000 | 50% | $ 2,120,000 | 50% | ||||||||||||||||||
Michael E. LaBelle | $ 1,945,000 | 52% | $ 972,500 | 50% | $ 972,500 | 50% | ||||||||||||||||||
Bryan J. Koop | $ 1,370,000 | 43% | $ 685,000 | 50% | $ 685,000 | 50% | ||||||||||||||||||
Total | $22,260,000 | 64% | $11,582,500 | $10,677,500 |
The performance-based portion of LTI equity awards for 2019 performance was granted in the form of 2020 MYLTIP awards, which have a three-year performance period (February 4, 2020 to February 3, 2023), and an additional year of time-based vesting. The dollar values of the awards were converted into a fixed number of MYLTIP units on the initial grant date, and the number of units initially granted equals 200% of the target number of units, and it is the maximum number of units that may be earned. Following completion of the three-year performance period, the Committee will determine the final payout based on computations from our appraisal expert for this plan, AON plc, and if the number of units initially awarded exceeds the number of units ultimately earned, then the excess will be forfeited. Therefore, while the award of 2020 MYLTIP units is in recognition for performance in 2019, award recipients must continue to perform over the three-year term of the 2020 MYLTIP program in order to earn and vest in any of the MYLTIP units and must generally remain employed for the four years to earn the full amount. The aggregate target number of units for NEOs is approximately 85,663 LTIP units and an aggregate payout opportunity ranging from zero to a maximum of 171,326 LTIP units. The baseline share price for 2020 MYLTIP awards was $143.52 (the average closing price per share of our common stock on the NYSE for the five trading days prior to and including February 4, 2020).
The 2020 MYLTIP awards are generally amortized into earnings over the four-year plan period under the graded vesting method, unless accelerated in certain circumstances such as a “Qualified Retirement” as defined under “– Potential Payments Upon Termination or Change in Control – Retirement Eligibility Provisions for LTI Equity Awards.” Under the Financial Accounting Standards Board’s Accounting Standards Codification 718 “Compensation – Stock Compensation” (“ASC Topic 718”), we expect that 2020 MYLTIP awards to NEOs will have an aggregate value of approximately $11.6 million.
The time-based LTI equity awards granted to the NEOs for 2019 performance consisted of LTIP units or restricted shares of our common stock that generally vest ratably over a four-year period (25% per year), subject to acceleration in certain circumstances including attaining retirement eligibility. See “– Potential Payments Upon Termination or Change in Control – Retirement Eligibility Provisions for LTI Equity Awards.” Pursuant to our Equity Award Grant Policy discussed below, time-based LTI equity awards were issued as of the close of business on January 31, 2020 based on the closing price per share of our common stock on the NYSE on that date of $143.35.
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IV. COMPONENTS OF EXECUTIVE COMPENSATION |
IV. COMPONENTS OF EXECUTIVE COMPENSATION
›OUR EXECUTIVE COMPENSATION PROGRAM
COMPONENT | WHY WE PAY IT | |
Base Salary | Provide a fixed, competitive level of cash compensation that reflects the NEO’s leadership role and the relative market rate for the executive’s experience and responsibilities | |
Annual Cash Incentive | Reward NEOs for achievement of annual financial and strategic goals that drive stockholder value, thereby aligning our NEOs’ interests with those of our stockholders A significant portion of the annual compensation for each NEO should be “at risk” and contingent upon the performance of the Company and the NEO versus their goals • Starting in 2020, annual cash bonuses for each NEO are linked to performance against goals in three weighted categories and each NEO has target and maximum bonus opportunities.(See “VII. New 2020 Annual Incentive Plan”) | |
Performance-Based Equity (MYLTIP) | Align the interests of our NEOs with those of our stockholders Motivate, retain and reward NEOs to achieve multi-year strategic business objectives that drive relative TSRout-performance • Create a direct link between executive pay and long-term relative TSR performance | |
Time-Based Equity | Align the interests of our NEOs with those of our stockholders Motivate, retain and reward NEOs to achieve multi-year strategic business objectives that drive absolute TSRout-performance • Enhance executive officer retention with time-based, multi-year vesting schedules for equity incentive awards |
›CASH COMPENSATION
Base Salary
The base salary for each NEO is determined by the Committee and is intended to provide a fixed level of compensation that reflects the NEO’s leadership role and the relative market rate for similarly-situated executives in the NEO’s position. The Committee determines whether to adjust base salaries based on a range of factors, including benchmark versus peers and changes in individual duties and responsibilities. Any increases to base salaries are generally determined in January of the compensation year and become effective in February of the compensation year.
The 2019 base salaries represented an increase of 2.8% over 2018 for all NEOs as a group. For the 2020 compensation year, the Committee did not increase base salaries for the NEOs.
Annual Incentive Program
The annual incentive program is designed to provide NEOs with the opportunity to earn cash bonuses based on the achievement ofpre-established corporate and individual goals. For 2019 and prior years, rather than rely on a strict formulaic framework, the Committee combined a quantitative and a qualitative assessment against the goals to:
• | evaluate management’s performance annually while taking into account our focus on value creation over the long-term and the difficulty of making precise comparisons to peers with different investment objectives and different strategies (see “—V. Assessing Performance – Focus on Long-Term Value Creation”); |
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strike the appropriate balance between short-term objectives and long-term strategies; and
properly emphasize quantitative results while also considering qualitative factors when assessing management’s performance.
For 2020, the Committee established a new annual cash incentive plan under which annual cash bonuses payable to our executive officers will have a direct link to the achievement of specific,pre-established goals. (See“—VII. New 2020 Annual Incentive Plan”)
›LTI EQUITY COMPENSATION
The Committee’s assessment of management’s performance against operational, capital and management goals is a material factor in determining the annual compensation awards. What our NEOs actually earn is driven to a significant extent by our TSR through LTI equity awards consisting of a mix of time-based and performance-based LTIP unit awards.
Time-Based Equity Awards
Time-based LTI equity awards generally vest ratably over a four-year period (25% per year), subject to acceleration in certain circumstances (e.g., death, disability or retirement), and are intended to align the interests of management with those of stockholders because the ultimate value of the award is directly tied to the value of our stock over the vesting period.
Performance-Based Equity Awards – Multi-Year Long-Term Incentive Program (MYLTIP)
The performance-based portion of LTI equity awards are granted under our Multi-Year Long-Term Incentive Program, or “MYLTIP.” The value of these awards is linked by formula to our relative TSR over three-year, overlapping measurement periods.
Consistent with the 2019 MYLTIP, under the 2020 MYLTIP:
the Company’s relative TSR performance is measured against a single index – the FTSE Russell Nareit Office Index (the “Nareit Office Index”) (which is adjusted to include Vornado Realty Trust because it is one of the six publicly-traded office REITs that we consider our most directly comparable peers (the “Office Peers”) despite being categorized as a diversified REIT by FTSE Nareit);
the awards are denominated in LTIP units; and
relative TSR is the sole determinant of how many LTIP units are earned and eligible to vest; there are no upside or downside absolute TSR modifiers.
For 2020 MYLTIP awards, the number of LTIP units that can be earned, whether in whole, in part or not at all, is based on levels of payout opportunity ranging from zero to 200% of the target number of LTIP units issued, on a straight-line basis depending on relative TSR performance compared to the Nareit Office Index (as adjusted) as follows:
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IV. COMPONENTS OF EXECUTIVE COMPENSATION |
Reported Pay vs. Realized Pay
The Committee recognizes that a perfect correlation does not exist between the successful execution of our long-term strategy, as demonstrated over time through the achievement of goals set for management, and our TSR, particularly on a relative basis. This is particularly true when TSR is compared over a limited period of time.
The following graph shows for our CEO (1) the reported value of the MYLTIP awards as of the respective grant dates, (2) the actual realized pay for the 2015-2017 MYLTIP awards for which the measurement periods have ended and (3) the interim valuations as of December 31, 2019 for the 2018 and 2019 MYLTIP awards:
(1) | Interim Valuation amounts and Payout as % of Reported Pay percentages shown for the 2018 and 2019 MYLTIP are estimates as of December 31, 2019 based on interim valuations performed by our valuation expert (which could change materially up or down over the remainder of the respective measurement periods). All percentages are rounded. |
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V. ASSESSING PERFORMANCE |
Business Strategy› COMPANY STRATEGY
The core elementskey tenets of our business strategy are:are to:
maintain a keen focus on select markets that exhibit the strongest economic growth and investment characteristics over time –— currently Boston, Los Angeles, New York, San Francisco and Washington, D.C. and Los Angeles;DC;
invest in the highest quality buildings (primarily office) with unique amenities and desirable locations that are able to maintain high occupancy rates and achieve premium rental rates through economic cycles;
maintain scale and a full-service real estate capability (leasing, development, construction and property management) in our markets to ensure we (1) see all relevant investment deal flow, (2) maintain an ability to execute on all types of real estate opportunities, such as acquisitions, dispositions, repositioning and development, throughout the real estate investment cycle, and (3) provide superior service to our tenants;tenants and (4) develop and manage our assets in the most sustainable manner possible;
be astute in market timing for investment decisions by acquiring properties in times of opportunity, developing into economicnew properties in times of growth and selling assets at attractive prices, resulting in continuous portfolio refreshment;
ensure a strong balance sheet to maintain consistent access to capital and the resultant ability to make opportunistic investments;new investments at opportune points in time; and
foster a culture and reputation of integrity, excellence and fair dealing,purposefulness, making us the counterparty of choice for tenants and real estate industry participants and the employer of choice for talented real estate professionals.professionals, the landlord and developer of choice for our customers and the counterparty of choice for real estate industry participants.
Focus› FOCUS ON LONG-TERM VALUE CREATION
We are a fully integrated real estate company, organized as a real estate investment trust (“REIT”), that develops, manages, operates, acquires and owns a diverse portfolio of primarily Class A office space. We are well-known for our development expertise,in-house building management and responsiveness to tenants’ needs, and we hold a superior track record of developing and operating premium Central Business District office buildings, successfulmixed-use complexes andbuild-to-suit projects for a diverse array of creditworthy tenants. The real estate business is long-term in nature, and our success requires that we make business decisions with a focus on Long-Term Value Creationour long-term objectives. As a result, our Committee strives to make compensation decisions that provide management with appropriate incentives to execute our strategy and promote the best interests of the Company and its stockholders over the long term.
Execution of our strategy spans multiple markets with different economic drivers over long periods. Development projects, which are particularly important to our strategy, take time to identify, acquire, permit, construct, lease and stabilize. This strategy of creating value for investors is multifaceted and differs from that of many of our competitors in the office REIT segment, which makes direct comparisons difficult and underlies our less formulaic approach to assessing performance, as contrasted with a purely quantitative “actual versus target” framework.
We manage every aspect of our business with a focus on the long-term, including, among others, developments, redevelopments, leasing, balance sheet management and our employees. To cite one recent example among many, we opened and commenced recognizing revenue at our Salesforce Tower development project in San Francisco in the fourth quarter of 2017. Salesforce Tower is an approximately 1,400,000 square foot office skyscraper in the South of Market district of downtown San Francisco, and as of December 31, 2017, it was 97% leased. Standing 1,070 feet high, it is now the tallest building in the San Francisco skyline and, according to the Council on Tall Buildings, the second-tallest building west of the Mississippi River. Our involvement in the project began with the formation of a joint venture with Hines in 2012 at which time we acquired a 50% interest in the project, and then in 2013 we acquired most of Hines’ remaining interest to become 95% owners of the project. The construction of the building was challenging due in large part to its proximity to the Transbay Transit Center and its location on a land fill near San Francisco’s original waterfront, requiring an advanced design modeled to withstand the strongest earthquakes. Salesforce Tower also features10-feet high clear glass windows, 100% fresh outside air indoors, 5th floor access to a5.4-acre Salesforce Park to be built and the largeston-site water recycling system in a commercial high-rise building in the United States. We expect the income from Salesforce Tower to have a significant impact on our results of
BOSTON PROPERTIES, INC. |2018 Proxy Statement 35
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
operations in 2019, which will be seven years since our initial involvement (Hines has been involved in the project since 2007), and we expect it to generate acash-on-cash yield of more than 7% upon stabilization. Other successful development projects have taken even longer. For example, it took more than 20 years to acquire, design, permit, construct andlease-up to stabilization 888 Boylston Street in Boston.
Redevelopment and repositioning of existing properties is also an important component of maintaining and enhancing the overall quality and long-term value of our portfolio. However, redevelopment and repositioning activity often has a short-term dilutive impact. When we remove from service all or a portion of a property for redevelopment or repositioning, we typically recognize less rental revenue while the space is vacant. For example, our repositioning activity at 159 East 53rd Street in New York City required that we terminate the leases of some tenants, which required payments to some of the tenants. Among other things, this can have a material negative impact on our same property results. However, we absorb the short-term negative impact because we believe investing in our assets to maintain and enhance the quality of our portfolio is in the best interest of shareholders. In addition to maintaining a full-service real estate platform and providing superior service to our tenants, our focus on long-term performance also involves management of capital and liquidity, leverage ratios, interest-rate risk, capital commitments and debt maturities to reduce the impact of capital market volatility and provide us with the flexibility to take advantage of opportunities as they arise.
For all of these reasons, we look at performance not only for the latest year and on a year-over-year basis, but also with a view to managing compensation to appropriately compensate, incentivize compensate and retain our executives.
Direct Peer Competitors
In addition to assessing our performance against ourpre-established› internal goals, the Committee also reviews our performance against the same metrics for the five Office Peers listed below (with their total capitalizations as of December 31, 2017 shown in parentheses) because they operate in markets and/or have assets similar to ours. Boston Properties’ total capitalization as of the same date was $34.5 billion (see “– VII. Benchmarking Peer Group and Compensation Advisor’s Role”).
Performance MetricsPERFORMANCE METRICS
We focus on key drivers of value creation such as leasing, development activity, new investments, growth in diluted FFO per share, same property NOI growth, acquisitions/dispositionsleasing, development starts, deliveries and balance sheet management.economics, and new investments. While the Committee is aware that different companies may calculate relevant performance
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V. ASSESSING PERFORMANCE |
metrics differently, particularlynon-GAAP financial measures, the Committee finds it useful to compare our performance to what these other office REITsthe Office Peers disclose for similar measures, even though information is not always directly comparable among companies.
The Committee believes that internal and external data are important tools in the design and implementation of optimal compensation programs and that benchmarking against peers provides the Committee with a market check of its compensation awards. Different sections of this CD&A discuss in
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III. ASSESSING PERFORMANCE
detail the data on which the Committee relied to make sure that different elements of compensation align with our performance. In addition, the Committee utilizes its collective experiences and judgment when establishing the appropriate types and amounts of compensation.
Finally,The Committee’s evaluation of our NEOs places strong emphasis on their contributions to overall Company performance because management roles change over time, boththe Committee believes that the NEOs share responsibility for individuals and withinachieving the executive teamgoals of the Company as a whole, and the Committee considers each individual’s personal contributions to our organization, as well as his skill sets, qualifications and experience.goals are set with a view towards how they help achieve the overall long-term strategy set by the Board. We also value and seek to reward performance that develops talent at all levels of our organization, promotes our culture of excellence, enhances our reputation and extends our track record of profitability and growth. For example, in 2017,
› DIRECT OFFICE PEER COMPETITORS
In addition to assessing our performance against ourpre-established internal goals, the Committee took note of Mr. Thomas’ being recognized in 2017 asalso reviews our performance against metrics from other companies to assess our performance relative to our peers’ performance and to ensure the #1 CEOgoals are sufficiently challenging. Given our scale, national focus and development skills, we do not have a directly comparable peer in the REIT sector by sell-side analystspublic market. We often compete with larger, privately-owned and, in an annual survey conducted byInstitutional Investor, and continued to bring his total compensation closersome cases, global office development companies for which performance data is not publicly available. In the public market where operating data is available, we assess our specific performance relative to the median for CEOs withinfollowing six Office Peers (with their approximate total capitalizations as of December 31, 2019 shown in parentheses), some of which we compete with in a single market and some of which do not have development capabilities or pursue significant development strategies.
Douglas Emmett, Inc. ($13.6 billion)
JBG Smith Properties ($7.6 billion)
Kilroy Realty Corporation ($12.9 billion)
Paramount Group, Inc. ($7.8 billion)
SL Green Realty Corp. ($14.2 billion)
Vornado Realty Trust ($22.9 billion)
Boston Properties’ total capitalization as of the same date was approximately $38.0 billion (see “VI. Determining Executive Compensation–Benchmarking Peer Group. The Committee also recognized Mr. LaBelle’s continued effectiveness in managing our balance sheet and his being recognized in 2017 for the third year in a row as the #1 CFO overall in the REIT sector, and #2 bybuy-side analysts and sell-side analysts, in an annual survey conducted byGroupInstitutional Investor & Compensation Advisor’s Role”).
2017 Corporate Goals› 2019 CORPORATE GOALS
In early 2017,2019, the Committee established for management a rigorous set of operational, capital and management goals that the Committee believed challenged management to perform for our investors. Whenever possible, the Committee bases its overall assessment as to whetherinvestors, while not creating a goal was “exceeded,” “met” or “not met” on both quantitative and qualitative factors. We believe that doing so allows the Committee to strike the right balance, by giving proper emphasis to objective results while also considering subjective factors. For the reasons discussed under “–Assessing Performance” above, we do not rely on a strictstrictly formulaic framework for measuring annual performance against goals to determine compensation.framework. The Committee believes that:
the focus should be on performance over a time span that is consistent with the different core elements of our long-term strategy for creating value;
excessive reliance on short-term goals could have negative implications for the execution of our strategy;
business conditions and unforeseen developments during the year that lead our Board and management to make decisions that impact actual performance against the goals as originally established must be taken into account; and
calculations that formulaically determine the amount of compensation paid based on performance versus goals, without the ability to exercise judgment to evaluate the quality of the results, may have unintended results.
During our outreach efforts, our investors told us that we use a relatively high number of performance goals when assessing performance, and they expressed a desire to better understand which goals were most important and how much the
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Committee factored them into the compensation decisions. The summaryCommittee attributes greater relative importance to certain goals based on what the Committee deems most important in the execution of our strategy in that year and, for 2019, categorized all goals as “primary” or “secondary” goals. The table below lists the principalprimary operational capital and managementcapital goals for 20172019 and the Committee’s overall assessment of management’s performance with respect to each.each denoting whether a goal was “exceeded,” “met” or “not met.” Although the Committee did not ascribe quantitative weightsno specific formulaic weightings were attributed to the various goals, the Committee’s assessment of performance against the primary goals was the most material factor in each category are listed such that those deemed most important are listed first.their determination of 2019 compensation.
› PRIMARY GOALS
Overall Assessment | ||
Growth in Diluted FFO per Share | Exceeded | |
Leasing | Exceeded | |
Key Individual Leasing | Met | |
Development Deliveries & Economics | Met | |
Development Starts | Met | |
New Investments | ||
Not Met |
|
Operational Goals
Why it is important: We generate revenue and cash primarily by leasing our operating and development properties. When making leasing decisions, we consider, among other things, the creditworthiness of the tenant, the term of the lease, the rental rate to be paid at inception and throughout the lease term, the costs of tenant improvements and other landlord concessions, current and anticipated operating expenses, real estate taxes, vacancy and expected future demand for the space, the impact of any expansion rights and general economic factors.
Quantitative Assessment:Following our successful leasing activity in 2016, we set an even more aggressive leasing goal for 2017 of 5.7 million square feet (of which 3.7 million square feet were in ourin-service portfolio and 2.0 million square feet were in our development properties). We exceeded the goal by leasing a total of 6.4 million square feet, or 14.5% of the total square footage in ourin-service portfolio. A total of 3.9 million square feet was in ourin-service portfolio and 2.5 million square feet was in our development portfolio. Both the total number of square feet leased and the total as a percentage of ourin-service portfolio were greater than all five of our Office Peers.
We also met our goals of achieving 90% - 91% occupancy for ourin-service portfolio and proactively managing future lease rollover. We accomplished this goal despite our decision to take some properties out of service for redevelopment, which had a short-term dilutive impact on our
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in-service portfolio occupancy rate and rental revenue, but is consistent with our long-term strategy. Our occupancy as of December 31, 2017 was less than four of the five Office Peers. We also completed a significant amount of early lease renewals and extensions, most notably in New York City.
Qualitative Assessment: Following the record amount of leasing we achieved in 2016, we set an aggressive leasing goal for 2017, which management not only achieved, but surpassed by an additional 0.7 million square feet.
Overall Assessment: Goal exceeded.
Why it is important: Our current strategy to drive future growth is to invest primarily in higher yielding new developments with significantpre-leasing commitments and in redevelopment opportunities, rather than lower yielding acquisitions of stabilized assets for which demand and pricing remain aggressive. Consistent with this strategy, beginning in 2015 we removed all or portions of some of our properties from service for redevelopment or repositioning, despite the near-term dilutive impact. In light of the significant amount of development and redevelopment projects, and the loss of occupancy and the dilutive impact of removing properties from service, management outlined for investors our plan to achieve incremental growth of approximately $352 million (including $242 million from development properties and $110 million from other key assets) in our share of annualized net operating income by 2020. The Key NOI Drivers goal is the manner by which the Committee assesses progress against the “bridge” in the years leading up to 2020.
Quantitative Assessment: In addition to the overall leasing goal discussed above, we set specific goals to lease an aggregate of approximately 1.2 million square feet of space at eight assets and renew our lease with Aramis (Estée Lauder) at 767 Fifth Avenue (the General Motors Building) in 2017. As of December 31, 2017, we had signed leases for approximately 1.5 million square feet, with another 29,000 square feet under letters of intent, and signed a lease renewal and subsequent lease expansion with Aramis for an aggregate of 300,000 square feet. In addition, as of December 31, 2017, we hadpre-leased 81% of the space in the development projects underlying our goal, representing an aggregate of approximately 6.2 million square feet.
Qualitative Assessment: In light of the successful leasing progress noted above, the Committee concluded that management successfully executed our strategy in 2017 and met this goal.
Overall Assessment: Goal met.
Overall Assessment: Exceeded |
Why it is important:FFO is anon-GAAP financial measure that, when combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO and FFO per share to be useful measures for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate assetestate-related depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), impairment losses on depreciable real estate and gains or losses associated with disposition activities, FFO and FFO per share can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREITNareit definition or that interpret the current NAREITNareit definition differently.
Goal: | 2019 Performance: | Office Peer Comparison: | ||
$6.75 - $6.92 per diluted share, or7.1% - 9.8% growth (subject to adjustments for acquisitions, dispositions, financings and similar transactions approved by the Board) | $7.01 per diluted share*, representing year-over-year growth of 11.3%; excluding acquisitions, dispositions and financings, FFO per diluted share would have been $7.17 per share, or 13.8% year-over-year growth** | Greater year-over-year growth than five of the six Office Peers; excluding the impact of acquisitions, dispositions and financings, our growth would have exceeded all six Office Peers |
* | Refer to pages 95 through 97 of our Annual Report on Form10-K for year ended December 31, 2019 for information relating to and the reconciliations of FFO and diluted FFO per share to net income attributable to Boston Properties, Inc. common shareholders. |
** | 2019 diluted FFO per share of $7.01 included the unbudgeted loss on extinguishment of debt of $0.16 per share resulting from the early redemption in September 2019 of $700 million of 5.625% unsecured senior notes that were scheduled to mature in November 2020. Excluding this loss, our diluted FFO per share would have been $7.17, or growth of 13.8% over 2018. |
Leasing | Overall Assessment: Exceeded |
Why it is important: We generate revenue and cash primarily by leasing our operating and development properties. When making leasing decisions, we consider, among other things, the creditworthiness of the tenant, the term of the lease, the rental rate to be paid at inception and throughout the lease term, the costs of tenant improvements and other landlord concessions,
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Quantitative Assessment: Our goal was to exceedcurrent and anticipated operating expenses, real estate taxes, overall vacancy, anticipated rollover and expected future demand for the midpoint of our diluted FFO guidance range of $6.05 to $6.23 (excludingspace, the impact of any acquisitionsexpansion rights and dispositions). This target range equated to 1.2% to 4.2% projected growth over 2016.
Our actual 2017 diluted FFO per share was $6.22, which includes the unbudgeted loss on extinguishment of debt of $0.08 per share resulting from the early redemption in December 2017 of $850 million of 3.700% unsecured senior notes that were scheduled to mature in November 2018. Excluding the loss, our diluted FFO per share would have been $6.30, or $0.07 greater than the high end of the guidance range set at the beginning of the year.
Our 3.2% year-over-year growth in diluted FFO per share was greater than three of the five Office Peers. (Refer to pages 96 through 100 of our Annual Report on Form10-K for information relating to the calculation of FFO and diluted FFO.)
Qualitative Assessment: Management successfully executed our strategy in 2017 and delivered performance that exceeded the goal.
Overall Assessment: Goal met.general economic factors.
Goal:* | Office Peer Comparison: | |||
• 6.0 million square feet (MSF) of total leasing at ourin-service portfolio • 92.0%year-end occupancy for ourin-service portfolio | • 7.6 MSF of total leasing, or 16.9% of ourin-service portfolio • 93.0%year-end occupancy for ourin-service portfolio | • Greater leasing volume than all six Office Peers, and leased a greater percentage of ourin-service portfolio* than four of the six Office Peers • Greater occupancy percentage than one of the six Office Peers |
* | Excludes hotel and residential properties |
Key Individual Leasing | Overall Assessment: Met |
Why it is important: In addition to overall leasing volume, we established individual leasing goals for specific properties that are intended to motivate our executives to (1) anticipate and proactively manage rollover and lease terminations at ourin-service Same Property NOI reflects properties and (2) lease and stabilize our development properties. The specific leases and properties that comprise the combined impact of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective on the performancegoal are important components of our Same Property portfolio across fiscal periods which are not immediately apparent from net income.
Quantitative Assessment: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) was a 2.0% - 3.5% increase. We met the goal with a 2.5% increase. The growth in our share of Same Property NOI (excluding termination income) was greater than two of the five Office Peers. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI (excluding termination income) for the fiscal years ended December 31, 2017 and 2016, respectively.)
Qualitative Assessment: Management successfully executed our strategy in 2017 and delivered performance that met the goal.
Overall Assessment: Goal met.annual business plan.
Goal: | ||
2.9 MSF of leasing across sevenin-service properties and one development property | Completed 2.9 MSF of leasing across eight properties |
Development Deliveries & Economics | Overall Assessment: Met |
Why it is important: Same Property NOI – Cash allows investorsDevelopment deliveries measure our ability to compareexecute our development pipeline on time and within budget. In addition, the performance of our Same Property portfolio across periods without taking into account the effects of straight-lining rent, fair value lease revenue, straight-lined ground rent expense and certain lease transaction costs that qualify as rent inducements.
Quantitative Assessment: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) – Cash was a 2.0% - 4.0% increase. Our year-over-year growth was 1.5%, which was below four of the five Office Peers. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI (excluding termination income) – Cash for the fiscal years ended December 31, 2017 and 2016, respectively.)
Qualitative Assessment: During 2017, we voluntarily entered into early lease terminations with a number of tenants that effectively resulted in the conversion of all or a portion of the remaining contractual rental revenue to termination income, which we exclude from our calculation of NOI. This shift in rental revenue to termination income resulted in growth that was short of the stated goal. Early lease terminations are not unique events, but we agreed to the terminations because
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on a net present value basis, the termination income plus anticipated replacement rental revenue (and, in some cases, any anticipated additional term) was greater than the rental revenue under the leases. The Committee believes these decisions were in the best long-term interests of our investors and thus concluded that management successfully executed our strategy in 2017 and met the goal.
Overall Assessment: Goal met.
Why it is important:To understand our expense base, of which executive compensation is a meaningful line item, our Committee assesses our management of G&A expense by determining its percentage of total revenue.
Quantitative Assessment: Our goal was to manage G&A expense (excluding transaction expenses) to approximately $108 - $114 million. Our actual 2017 G&A expense was approximately $113.7 million (an 8.3% increase from 2016), which represents approximately 4.4% of our total revenue for 2017. We also managed our G&A expense to a smaller percentage of total revenue than all five Office Peers.
Overall Assessment: Goal met.
Capital Goals
Why it is important: The success of our development projects and realization of our plans for growth depend on the stabilized unleveraged cash yields we generate.
Quantitative Assessment: One of our goals was to deliver the 888 Boylston Street development project and the Reservoir Place North redevelopment project on or below budget, which was an aggregate of $290 million, producing favorable yields. The actual costs for both projects totaled $290 million. Thecash-on-cash return for 888 Boylston Street was approximately 9.3% on a stabilized basis, exceeding management’s anticipated yield of 8.5%. Reservoir Place North, a 73,000 square foot redevelopment has not yet been leased. Upon stabilization, we expect 888 Boylston Street and Reservoir Place North to deliver a weighted-average, unleveragedcash-on-cash return of approximately 9.1%, which is more than 200 basis points greater than our target return for office developments.
Qualitative Assessment: In executing our strategy, management believes that, in general, the best use of our capital at this time is investing in new development activity and our ability to deliver development projects with unleveraged initial cash yields of approximately 7% is a product of our execution. In this current market, existing leased assets are selling at cap rates in the 4% range, so our development investments have significant projected imbedded value creation and are projected to drive our earnings growth over the next few years. Although Reservoir Place North, a relatively small space, remains unleased, the Committee concluded that management successfully executed our strategy in 2017 with the successful delivery of 888 Boylston Street and management therefore met the goal.
Overall Assessment: Goal met.
Goal: | 2019 Performance: | Office Peer Comparison: | ||
• Deliver three office development projects aggregating 1.1M SF at a total budgeted cost of approximately $667M. • Achieve approved economics (% leased at delivery oryear-end, as applicable, andcash-on-cash (“CoC”) return) for five office and residential development projects representing an aggregate weighted-average lease percentage of 91% and aggregate weighted-average CoC return of 7.3%. | • BXP delivered two of the three office projects representing an aggregate of approximately 865K SF with our share of total costs of approximately $488M, representing 2.3% of gross book value (“GBV”). • BXP achieved a weighted-average of 91% leased and weighted-average CoC return of 8.1% for four of the five projects. Although BXP delivered space to the tenant for the fifth project (i.e., 159 E 53rd Street), revenue recognition has been delayed due to accounting policies. | Deliveries represent a greater percentage of GBV than four of the six Office Peers |
Development Starts | Overall Assessment: Met |
Why it is important:Development starts are a useful indicator of future external growth, and they help us assess our ability to identify, underwrite and acquire new land parcels and air rights or redevelop existing properties, secure leadanchor tenants with significantpre-leasing commitments, obtain financing and/or joint venture partners, and commence construction of the building. Our investments in new developments and redevelopments are a product of the execution of our strategy to drive future growth, and the commencement of these projects substantiates our reputation and expertise in this area.
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Quantitative Assessment: Our goal was to start development at 145 Broadway in Cambridge, Massachusetts, a 475,000 square foot development with a budget of $375 million. In addition to meeting the goal by commencing development at 145 Broadway, we started five other developments in 2017, easily exceeding our goal. Specifically, we commenced development at:
When delivered, we expect these properties will total approximately 2.7 million square feet, which is more than five times the goal set for 2017. As of December 31, 2017, we had a weighted-average of 94%pre-leased for the four office development projects that commenced. Our development starts have an aggregate development budget (our share) of approximately $1.4 billion and represent approximately 6.1% of gross asset value, both of which are greater than all five Office Peers.
Qualitative Assessment: We expect that development will remain a key component of our strategy. Our development activity remains active with many newpre-leased projects either committed to or under pursuit. Committed to, but not yet commenced developments in the pipeline include 2100 Pennsylvania Avenue in Washington, DC, 17Fifty Presidents Street in Reston, Virginia, and Reston Gateway in Reston, Virginia, together representing 1.7 million square feet and approximately $1.2 billion in investment. As of December 31, 2017, we had approximately 6.2 million square feet under construction and redevelopment, including eight office and retail projects with a development budget (our share) of approximately $2.6 billion, and four residential projects with a development budget of approximately $792 million. In addition, we have a total of approximately 1.7 million square feet in our entitled future development pipeline, and an estimated 10.1 million square feet of future development projects in the entitlement process.
Overall Assessment: Goal exceeded.
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Goal: | Office Peer Comparison: | |||
Commence two development projects totaling approximately 908K SF and approximately $850M of budgeted costs | Commenced development at 325 Main Street in Cambridge, MA, and 2100 Pennsylvania Avenue in Washington, DC. In addition, BXP commenced redevelopment of 200 West Street in Waltham, MA. In total, BXP commenced more than 1.0M SF of development with aggregate total budgeted costs of $822M, representing GBV of 3.1%. | Greater GBV than four of the six Office Peers |
New Investments | Overall Assessment: Not Met |
Why it is important: Development deliveries measure our ability to execute our development pipeline on time and within budget.
Quantitative Assessment: Our goal was to deliver two development projects totaling approximately 438,000 square feet with an aggregate development budget of approximately $309 million, which represents 1.3% of gross asset value. We met the goal by fully placingin-service 888 Boylston Street in Boston, Massachusetts, totaling approximately 417,000 square feet at a total cost of approximately $265 million, and delivering Reservoir Place North, a 73,000 square foot redevelopment in Waltham, Massachusetts at a total cost of $25 million, for a total of 490,000 square feet and an aggregate cost of $290 million. Our 2017 development deliveries met our goal of approximately 1.3% of gross asset value, a greater percentage than four of the five Office Peers.
Qualitative Assessment: Taken as a whole, management delivered 490,000 square feet of development space in 2017, which was 52,000 square feet, or 12%, greater than the goal. Upon stabilization, we expect 888 Boylston Street and Reservoir Place North to deliver a weighted-average, unleveragedcash-on-cash return of approximately 8.7%, which is greater than our target return for office developments of 7.0%.
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Overall Assessment: Goal met.
New |
Why it is important: Active participation in new investments sustainshelp sustain our market-leading position and growth prospects, and new partnerships provide additional sources of capital and validate our strong reputation as a preeminent owner and developer.
Goal: | 2019 Performance: | Office Peer Comparison: | ||
Consisted of seven transactions to either pursue or complete in 2019 | Completed or pursued four of the seven targeted transactions. Although not completed until January 2020, BXP pursued to near completion in 2019 the joint venture for our Gateway properties. In addition, although not included in the goal, we acquired 880 and 890 Winter Street in Waltham, MA. In total, BXP’s new investments in 2019 represented, in the aggregate, 1.4% of GBV. | Greater GBV than two of the six Office Peers |
Quantitative Assessment:› Our goals were to make select acquisitions depending on market conditions, with a focus on opportunities in the Los Angeles market, and complete three new investments from a list of potential transactions that we were pursuing at the beginning of 2017. In 2017, market conditions in the private real estate equity market declined as office sale transaction volume decreased by 25% by the end of 2017 when compared to 2016. Due to these conditions, we did not complete any of the specified acquisitions included in this goal in 2017, but will continue to evaluate opportunities as they arise. For 2017, three of the five Office Peers invested a greater percentage of gross asset value percentage than we did. SECONDARY GOALS
Despite the market conditions, we made two new key investments in 2017: a 740,000 square foot building at 7750 Wisconsin Avenue in Bethesda, Maryland, which is fully leased to Marriott International to serve as its headquarters, and a 634,000 square foot development at 6595 Springfield Center Drive in Springfield, Virginia, fully leased by the TSA to serve as its headquarters. These two developments total approximately $525 million (our share) in new investment.
Qualitative Assessment: We remain committed to growing our presence and portfolio in Los Angeles and, in 2017, underwrote numerous opportunities in the market. However, due to pricing challenges, we decided not to proceed with them. We have been executing on our strategy to develop office properties at higher yields rather than acquire assets at lower yields as evidenced by thepre-leased projects launched in 2017 with anticipated unlevered initial cash yields of approximately 7%. Management remains disciplined in its underwriting of opportunities and will continue to do so as we look to grow. In addition to securing the Marriott and TSA investments, management has committed to approximately 1.7 million square feet and $1.2 billionprimary goals, the Committee established the goals listed below for our executive officers for 2019. Although the Committee considered these secondary goals as part of the overall assessment of the NEOs’ performance for the year, no single goal was a material factor in new investment.
Overall Assessment: Goal met.awarding compensation for 2019.
2019 Secondary Goals | ||
Environmental, Social and Governance | Exceeded | |
Same Property Performance NOI & NOI – Cash | Exceeded | |
Dispositions | Met | |
Financings | Met | |
General & Administrative Expense | Met | |
Capital Expenditures & Repositioning | Met | |
New Development Milestones | Not Met | |
Redevelopment Milestones | Met | |
Entitlements | Met |
Why it is important: A strong balance sheet and superior access to capital help us minimize debt finance costs, enable us to act quickly on opportunistic investments and better manage our debt maturities to reduce the impact of capital market volatility.
Quantitative Assessment: In 2017, management excelled in its execution of our strategy to manage near-term debt maturities and maintain a conservative balance sheet. In April 2017, we amended and restated our credit facility, which increased the total commitment to an aggregate of $2.0 billion, reduced the variable interest rates and extended the maturity from July 2018 to April 2022. Included in the refinancing was the addition of a $500 million delayed-draw term loan facility. Also, in December 2017, we completed a public offering of $850 million in aggregate principal amount of 3.200% unsecured senior notes due 2025, the proceeds of which were used to redeem $850 million in aggregate principal amount of our 3.700% unsecured senior notes scheduled to mature in November 2018. This had the effect of reducing our borrowing costs and extending our debt maturities. Taken as whole, our financing activities in 2017 resulted in a decrease in interest expense of approximately $38.4 million compared to 2016 and extended the weighted-average maturity of our debt to 6.4 years from 5.0 years at the end of 2016.
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In addition, we completed significant financings for two of our joint venture properties. In June 2017, an entity in which we own a 60% interest completed a refinancing of a mortgage secured by interests in 767 Fifth Avenue (The General Motors Building), resulting in a $2.3 billion mortgage bearing interest at a fixed interest rate of 3.43% per annum and maturing in June 2027. This represented the largest loan secured by a single asset in United States history. Also, in July 2017, the entity in which we own a 50% interest in Colorado Center obtained a mortgage loan for $550 million. The mortgage loan bears interest at a fixed rate of 3.56% per annum and matures in August 2027.
Qualitative Assessment: In 2017, we completed an aggregate of $5.9 billion in debt financing and refinancing activity, preserving a strong balance sheet to maintain consistent access to capital and the flexibility to make opportunistic investments. The Committee concluded that management executed our strategy with great success in 2017 and exceeded the goal.
Overall Assessment: Goal exceeded.
6 |
Why it is important: The disposition ofnon-core assets allows us to better leverage the properties in our portfolio. In addition, older buildings require relatively greater operating costs and capital expenditures than new buildings, so we believe a consistent review of our portfolio and the future growth opportunities of the properties therein is an important component of our overall strategy.
Quantitative Assessment: Our goal was $200 million in asset dispositions, depending on market conditions. During 2017, we completed $31 million in sales ofnon-core assets. We recognized a total gain of approximately $6.6 million. Our 2017 percentage of gross asset value from dispositions was lower than four of the five Office Peers.
Qualitative Assessment: Our disposition activity in 2017 was relatively low and is a result of our strategy to sell onlynon-core assets or assets with lower growth profiles. It is also important to note that as of December 31, 2017, we were also under contract or had signed letters of intent to sell two assets totaling $149 million, one of which closed in early January 2018.
Overall Assessment: Goal not met.
Why it is important: Obtaining the necessary entitlements and permits is an essential component to the execution of our development and redevelopment pipelines.
Quantitative Assessment: Our goals were to (1) obtain the remaining entitlements and/or complete the development plans for five projects and (2) advance the development plans for five projects. We obtained the necessary entitlements for the three of the five projects, including the Reston Eastgate land parcel in Reston, Virginia that was sold in 2017, we commenced development of a402-unit residential building and supporting retail space at the MacArthur Station residences in Oakland, California, and we completed the development plan for 501 K Street in Washington, DC. In addition, we advanced our development plans at each of the five properties that comprised the goal. Among other things, we entered into lease agreements with tenants, but had not yet commenced development, at 2100 Pennsylvania Avenue in Washington, DC, 17Fifty Presidents Street in Reston, Virginia, and Reston Gateway in Reston, Virginia, together representing 1.7 million square feet and $1.2 billion in investment.
Qualitative Assessment: Although management made significant progress in 2017, there are elements of our business that are not within our control that prevented us from completing a number of the projects outlined at the beginning of 2017. While we remain focused on obtaining
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these entitlements so that we have more control over the timing of when to commence construction of these projects, the Committee concluded that management did not meet this goal.
Overall Assessment: Goal not met.
Why it is important: Redevelopment of existing properties is important in maintaining the overall high quality of our assets, and repositioning can better position specific properties for competition.
Qualitative Assessment: Our goal was to make progress on four of our properties identified as redevelopment opportunities. We’ve finalized plans for two of the properties. The other two properties are slated for lobby renovations with one project underway and the other awaiting local city approval.
Overall Assessment: Goal met.
Management Goals
Why it is important: A complex, long-term strategy like ours requires regular interaction with thebuy-side and sell-side analysts, as well as significant investors in our stock, particularly because it differs from that of many of our peers in the office sector. Producing clear and concise presentations for investors in a variety of forums helps us differentiate Boston Properties in the REIT sector.
Qualitative Assessment: During 2017, management continued to enhance our investor communications strategy, including conducting threenon-deal road-shows, two of which were outside of the United States, with a particular focus onnon-REIT dedicated and underweight investors. In October 2017, we held an investor conference attended by over 200 industry professionals from which we received positive feedback.
Overall Assessment: Goal exceeded.
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COMPENSATION DISCUSSION AND ANALYSIS
Multi-Year Long-Term Incentive Program (MYLTIP)
Management’s performance against operational, capital and management goals drives the Committee’s annual compensation awards. What our NEOs actually earn is driven to a significant extent by our TSR through LTI awards under a rigorous performance-based program (our Multi-Year Long-Term Incentive Program, or “MYLTIP”). MYLTIP awards incorporate a formulaic link to our relative TSR over three-year overlapping measurement periods.
Because we are the largest dedicated office REIT, our performance is most closely correlated with both the larger U.S. REITs and office-focused companies. Therefore, consistent with the 2017 MYLTIP, the 2018 MYLTIP design is built on a comparison of our TSR against (1) the C&S Realty Index, which reflects many of the largest andbest-in-class REITs, and (2) the NAREIT Office Index (which includes Boston Properties and is adjusted to include Vornado Realty Trust because it is one of the five Office Peers despite being categorized as a diversified REIT by FTSE NAREIT), which contains all other listed office REITs. MYLTIP awards include modifiers that potentially penalize management for low absolute TSR and reward management for high absolute TSR over the entire measurement period. If our annualized TSR is less than 0%, earned awards will be reduced by 20% from what they would be based on relative TSR alone. If our annualized TSR is more than 12%, then awards will be earned at the “threshold” (50% of target value) level even if, based on relative TSR alone, awards would be earned at a lower level.One-half of any earned awards vest at the end of the performance measurement period. The remainingone-half is subject to one additional year of time-based vesting. Vesting is accelerated under certain circumstances. (See “– IX. Other Compensation Policies – Double-Trigger Acceleration of Vesting of Equity Awards upon a Change of Control” beginning on page 54.)
For 2018 MYLTIP awards, levels of payout opportunity range from zero to 200% of target value, on a straight-line basis, depending on relative TSR performance compared to each of the C&S Realty Index and NAREIT Office Index (as adjusted) as follows:
The Committee believes that the MYLTIP design provides management with quantifiable incentives that (i) span an appropriate, symmetrical range of relative TSR performance aligned with historical volatility in the REIT sector compared to our actual performance, (ii) will keep our management motivated over the entire three-year measurement period and (iii) reward management within a rigorouspay-for-performance philosophy. Based on advice from FPL, the Committee believes that the MYLTIP design is competitive as compared with current market practice in the REIT industry for similar plans and provides an appropriate risk-rewardtrade-off.
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IV. PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY
Status of MYLTIP Awards
The following summarizes the performance periods and outcomes of our 2013-2015 MYLTIP plans, all of which have ended, and the interim valuations as of December 31, 2017 for our 2016-2017 MYLTIP plans, in each case, based on calculations prepared by our valuation expert.
VI. DETERMINING EXECUTIVE COMPENSATION
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COMPENSATION DISCUSSION AND ANALYSIS
IV. PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAYOur Committee followed the same general process when setting executive compensation for 2019 as in recent years, which includes:
Reported vs. Realized Pay
The Committee is cognizantusing the median (50th percentile) of a peer group of 16 REITs that a direct correlation does not exist between the successful execution of our long-term strategy, as demonstrated year after year through the achievement of goals set for management, and our TSR, particularly on a relative basis. This is particularly true when TSR is compared over a limited period of time. For example, for the most recent 2015 MYLTIP program, Mr. Thomas earned $950,039, or 22%are constituents of the target value for those awards,S&P 500 Index (the “Benchmarking Peer Group”) as the beginning reference point and allas an indicator of competitive market trends;
considering an analysis prepared by FW Cook that benchmarks each executive officer, and the NEOs as a group, earned $2,634,349, or 22% ofagainst the target value for those awards. The following graph shows for our CEO (1) the reported value of the MYLTIP awards as of the respective grant dates, (2) the maximum payout opportunity that could have been earned under each plan based primarily onBenchmarking Peer Group to determine their relative TSR performance, and (3) the actual realized payplacement with respect to compensation for the 2013-2015 MYLTIP awardsprior year;
assessing performance not only against our ownpre-established corporate goals, but also against the same performance metrics for which the measurement periods have ended, as well as interim valuations as of December 31, 2017 for the 2016six Office Peers;
considering total NEO compensation over time, both on an awarded basis and 2017 MYLTIP awards:on a realized basis after forfeitures;
2013 MYLTIP | 2014 MYLTIP | 2015 MYLTIP | Total (2013-2015) | 2016 MYLTIP | 2017 MYLTIP | |||||||||||||||||||
Reported Pay | $ | 1,125,000 | $ | 2,826,563 | $ | 4,145,625 | $ | 8,097,188 | $ | 5,000,000 | $ | 5,150,000 | ||||||||||||
Target Value | $ | 2,045,454 | $ | 2,884,247 | $ | 4,318,359 | $ | 9,248,060 | $ | 5,681,818 | $ | 6,204,819 | ||||||||||||
Maximum Payout Opportunity | $ | 6,136,362 | $ | 8,652,742 | $ | 10,795,898 | $ | 25,585,003 | $ | 14,204,545 | $ | 12,409,639 | ||||||||||||
Realized Pay | $ | 2,239,772 | $ | 798,257 | $ | 950,039 | $ | 3,988,068 | $ | 2,443,182 | (1) | $ | 2,854,217 | (1) | ||||||||||
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Payout as % of Target | 109% | 28% | 22% | 43% | 43% | (1) | 46% | (1) |
48 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Based on the goal assessments, FPL’s benchmarking analysis andconsidering projections for compensation increases and decreases among our peers and the market generally, and other input received from FPL,FW Cook; and
based on the Committee decided that 2017foregoing, establishing a dollar amount for total compensation for the NEOs, as a group, should be set at a level that reflects an increase of approximately 11% over 2016 total compensation, with a view to retention and providing incentives aligned with the best long-term interests of the Company and its stockholders.
Variable Pay Mix
For each NEO the Committee approves the appropriate level and mix of pay based on his role, responsibilities and performance. The Committee believes that our executive compensation is well-aligned with our stockholders’ interests and in line with the Benchmarking Peer Group. Variable pay, consisting of LTI equity awards and annualthen allocating it among base salary, cash bonus, constitutes the vast majority of our executive compensation (for our CEO, variable pay increased to 92.4% of total compensation for 2017 performance). This allows the Committee to reward good performance and penalize poor performance. The following charts present the allocation of total pay among different components for our CEO and the weighted-average of each component for all NEOs as a group:
BOSTON PROPERTIES, INC. |2018 Proxy Statement 49
COMPENSATION DISCUSSION AND ANALYSIS
V. ALIGNMENT OF PAY WITH PERFORMANCE
2017 Compensation
The following table presents the total direct compensation of our NEOs, inclusive of salary, bonus and LTI equity awards but not other items required by SEC rules(including time-based LTI awards and performance-based LTI awards that use relative TSR over overlapping three-year measurement periods as the performance metric, to be reported in the Summary Compensation Table presented under “Compensation of Executive Officers.” We believe that this table most accurately reflects the awards made by the Committee with respect to executive compensation for 2017 compared to 2016, including MYLTIP awards whose value will be determined over a forward three-year period based on our relative TSR. To link annual awards of long-term equity incentive compensation to annual performance, the Committee, consistentfurther align management’s objectives with the majority of other companies whose fiscal year ends on December 31, typically makes equity awards for a particular year in late January or early February of the following year. SEC rules for equity awards (unlike for cash bonuses) require that they be presented as compensation for the year in which they were actually granted, and therefore equity awards shown in the Summary Compensation Table presented under “Compensation of Executive Officers” on page 61 lag a year (i.e., awards made in February 2018 to reward performance in 2017 are not reflected in this year’s Summary Compensation Table).
Salary(1) | Cash Bonus | |||||||||||||||||||||||
Executive | 2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||||
Owen D. Thomas | $ | 875,000 | $ | 875,000 | —% | $ | 2,425,000 | $ | 2,558,333 | (5.2)% | ||||||||||||||
Douglas T. Linde | $ | 725,000 | $ | 725,000 | —% | $ | 1,935,000 | $ | 1,847,500 | 4.7% | ||||||||||||||
Raymond A. Ritchey | $ | 720,000 | $ | 720,000 | —% | $ | 2,080,000 | $ | 1,555,000 | 33.8% | ||||||||||||||
Michael E. LaBelle | $ | 500,000 | $ | 500,000 | —% | $ | 1,325,000 | $ | 900,000 | 47.2% | ||||||||||||||
Bryan J. Koop | $ | 400,000 | $ | 400,000 | —% | $ | 1,280,000 | $ | 835,000 | 53.3% | ||||||||||||||
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Total | $ | 3,220,000 | $ | 3,220,000 | —% | $ | 9,045,000 | $ | 7,695,833 | 17.5% | ||||||||||||||
LTI Equity Awards | Total Compensation | |||||||||||||||||||||||
Executive | 2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||||
Owen D. Thomas | $ | 8,189,000 | $ | 6,866,667 | 19.3% | $ | 11,489,000 | $ | 10,300,000 | 11.5% | ||||||||||||||
Douglas T. Linde | $ | 5,331,000 | $ | 4,777,500 | 11.6% | $ | 7,991,000 | $ | 7,350,000 | 8.7% | ||||||||||||||
Raymond A. Ritchey | $ | 4,509,000 | $ | 4,225,000 | 6.7% | $ | 7,309,000 | $ | 6,500,000 | 12.4% | ||||||||||||||
Michael E. LaBelle | $ | 2,050,000 | $ | 2,100,000 | (2.4)% | $ | 3,875,000 | $ | 3,500,000 | 10.7% | ||||||||||||||
Bryan J. Koop | $ | 1,308,000 | $ | 1,365,000 | (4.2)% | $ | 2,988,000 | $ | 2,600,000 | 14.9% | ||||||||||||||
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Total | $ | 21,387,000 | $ | 19,334,167 | 10.6% | $ | 33,652,000 | $ | 30,250,000 | 11.2% |
50 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The Committee approved LTI equity awards to NEOs for 2017 performance as a dollar amount that was then converted into a mix of performance-based MYLTIP awards and time-based, full-value equity awards. At the direction of the Committee, FPL conducted a multi-year, backward- and forwarding-looking analysis of peer equity award pay mix with the objective of finding the appropriate allocation to maintain the focus and dedication of a talented management team, which, in our case, has met or exceeded its goals as a whole. Based on the information received from FPL, the Committee determined that it would be advisable to migrate over time to an allocation of LTI equity awards for the NEOs that is closer to the 50% - 50% mix of performance-based and time-based that is widely accepted in the market and prevalent among our peers, although the precise allocation will vary among different NEOs and from year to year based on circumstances. Messrs. Thomas’ and Linde’s reallocation resulted in relatively larger portions of performance-based 2018 MYLTIP awards as compared to past LTI equity award mixes, and Messrs. Ritchey, LaBelle and Koop received relatively larger portions in time-based incentive equity. The following table sets forth the dollar values of the performance-based and time-based equity awards to NEOs for 2017:
Executive | Performance- Based LTI Equity Awards | Time-Based LTI Equity Awards | Total LTI Equity Awards | Total LTI Equity Awards as % of Total Compensation | ||||||||||||
Owen D. Thomas | $ | 4,339,000 | $ | 3,850,000 | $ | 8,189,000 | 71% | |||||||||
Douglas T. Linde | $ | 2,861,000 | $ | 2,470,000 | $ | 5,331,000 | 67% | |||||||||
Raymond A. Ritchey | $ | 2,100,000 | $ | 2,409,000 | $ | 4,509,000 | 62% | |||||||||
Michael E. LaBelle | $ | 912,500 | $ | 1,137,500 | $ | 2,050,000 | 53% | |||||||||
Bryan J. Koop | $ | 560,000 | $ | 748,000 | $ | 1,308,000 | 44% | |||||||||
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Total | $ | 10,772,500 | $ | 10,614,500 | $ | 21,387,000 | 64% |
The performance-based portion of LTI equity awards for 2017 performance was made through 2018 MYLTIP awards, with a three-year performance period (February 6, 2018 to February 5, 2021), an additional year of time-based vesting, a total target value for NEOs of approximately $13.1 million and an aggregate payout opportunity ranging from zero to a maximum of $26.3 million. The baseline share price for 2018 MYLTIP awards was $118.46 (the average closing price per shareinterests of our common stock on the NYSE for the five trading days prior to and including February 6, 2018)investors).
Under the Financial Accounting Standards Board’s Accounting Standards Codification 718 “Compensation – Stock Compensation” (“ASC Topic 718”), we expect that 2018 MYLTIP awards to NEOs will have an aggregate value of approximately $10.8 million, which amount will generally be amortized into earnings over the four-year plan period under the graded vesting method. 2018 MYLTIP awards were made in the form of LTIP units that are subject to forfeiture to the extent they are not earned or do not become vested. The number of LTIP units issued was an estimate of the maximum number of LTIP units that NEOs could earn, based on certain assumptions. The number of LTIP units actually earned will be determined at the end of the performance period by dividing each NEO’s share of the total pool, if any, by the average per share closing price of our common stock on the NYSE for the fifteen trading days immediately preceding the measurement date. If fewer LTIP units than the number issued initially are earned, the balance will be forfeited. Prior to the measurement date, LTIP units issued on account of 2017 MYLTIP awards will be entitled to receive per unit distributions equal to 10% of the regular quarterly distributions payable on a common unit, but will not be entitled to receive any special distributions, as opposed to distributions per unit equal to those, both regular and special, payable on a common unit after the measurement date.
BOSTON PROPERTIES, INC. |› 2018 Proxy Statement 51
BENCHMARKING PEER GROUP & COMPENSATION DISCUSSION AND ANALYSISADVISOR’S ROLE
VI. ALLOCATION OF LTI EQUITY AWARDS
The time-based portion of LTI equity awards granted for 2017 performance to the NEOs other than Mr. Ritchey consisted of LTIP units or restricted shares of our common stock that vest ratably over a four-year period (25% per year). In the case of Mr. Ritchey, the time-based portion of his 2017 LTI equity award was fully vested upon issuance because he had attained the retirement age of 65. Pursuant to our Equity Award Grant Policy discussed below, time-based full-value equity awards were issued as of the close of business on February 2, 2018 based on the closing price per share of our common stock on the NYSE on that date ($119.34).
The Committee monitors the effectiveness of our executive compensation program on an ongoing basis. For it to be effective, among other things, we believe it is necessary for compensation to be competitive with other large public real estate companies with which we compete for executive talent. The Committee uses industry peer group data as one tool in assessing and determining pay for our executive officers. Other REITs, however, both in the office sector and in other sectors, are not always comparable to us because of differences in underlying business fundamentals. Peer group data is intended to provide the Committee with insight into overall market pay levels, market trends, “best” governance practices, and overall industry performance. The median (50th percentile) serves as a reference point and indicator of competitive market trends and the Committee uses it as the starting point when setting our executive compensation. We believe this use of peer company data is consistent with how stockholders and proxy advisory firms use such data.
In 2019, the Committee retained FW Cook to serve as its new independent, third-party compensation consultant. FW Cook reports directly to the Committee and does not provide services to management that are not under the Committee’s purview. A representative of FW Cook attends meetings of the Committee, as requested, and communicates with the Committee Chair between meetings. Consistent with its charter and as required by SEC rules and NYSE listing standards, prior to retaining FW Cook as its consultant, the Committee considered all factors relevant to FW Cook’s independence from management.
The Committee has retained FPL as its advisor since 2012engaged FW Cook to provide a fresh perspective on our overall executive compensation program, advise the Committee on the reasonableness of executive compensation levels in comparison with those of other similarly situated companies and every yearre-assesses andre-affirmsconsult on the independencestructure of FPL in connection with renewal of the engagement. The Committee directed FPL to, among other things: (1) benchmark our executive compensation againstprogram to optimally support our peersbusiness objectives. It also advised the Committee on executive compensation trends among REITs and assistthe broader market, noting specifically that, in developingaggregate, total direct compensation objectives, (2) analyze trends in compensation inlevels for the marketplace generallyNEOs were competitive and among our peers specificallyreasonably aligned with relative performance, but the pay mix was more heavily weighted to cash and (3) recommend the components and amounts of compensation for our top executive officers.
FPL selected the companiesless to be included inequity than the peer group we useoverall. As a result, the Committee initiated its plan to gradually reduce cash compensation and shift the pay mix toward LTI equity awards for benchmarking executive compensation based on a review ofall NEOs. Accordingly, the methodologies employed by sixteen of the REITs included in the S&P 500 Index. Based on these criteria, FPL recommendedCommittee awarded aggregate cash bonuses to the NEOs that were (9.9)% less than awarded to the same NEOs for 2018, and the performance-based equity awards for all NEOs in 2019 represent a greater percentage of total direct compensation than they did in 2018. FW Cook also recommended changes to the 2020 compensation program design and structure. The Committee relied on this advice, and the feedback received from the investor outreach process, in deciding to establish the 2020 Annual Incentive Plan (see“—VII. New 2020 Annual Incentive Plan”).
60 | | 2020 Proxy Statement |
6› | COMPENSATION DISCUSSION AND ANALYSIS | |
VI. DETERMINING EXECUTIVE COMPENSATION |
Benchmarking Peer Group
The Committee selected the same peer group for benchmarking 2019 executive compensation that it used for 2018. That peer group consists of sixteen publicly traded real estate companies as it did in previous years, whichthat are of comparable size to the Company in terms of total capitalization and assets, irrespective of property focus. FPL feltFW Cook (i) advised the Committee that size, as measured by total capitalization, rather than equity market capitalization, is the most relevant criterion because top executives are ultimately responsible for managing the entire organization and total capitalization best depicts the scale, complexity and breadth of the Company’s operations, as well as the amount of capital and assets managed.managed, and therefore is the most appropriate scope measure for peer company selection and (ii) reviewed the peer group for 2018 and recommended that the Committee maintain the same peer group for 2019. Notably, fifteenfourteen out of the sixteen members of this Benchmarking Peer Group also list us as a peer company.
52 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
VII. BENCHMARKING PEER GROUP AND COMPENSATION ADVISOR’S ROLE
company in their 2019 proxy statements.
The following table provides the names and key information for each peer company:
Name | Property Focus | Headquarters | Number of Employees(1) | UPREIT Market Capitalization (in millions)(2) | Total Capitalization (in millions)(3) | ||||||||||||||||||||||||||||||||||||
Number of Employees(1) | UPREIT Market Capitalization (in millions)(2) | Total Capitalization (in millions)(3) | |||||||||||||||||||||||||||||||||||||||
Alexandria Real Estate Equities, Inc. | Office | Pasadena, CA | 323 | $12,591 | $17,980 | Office | Pasadena, CA | 439 | $ | 19,519 | $ | 27,869 | |||||||||||||||||||||||||||||
American Tower Corporation | Specialty | Boston, MA | 4,752 | $61,185 | $83,567 | Specialty | Boston, MA | 5,454 | $ | 101,785 | $ | 134,377 | |||||||||||||||||||||||||||||
AvalonBay Communities, Inc. | Multi-family | Arlington, VA | 3,112 | $24,638 | $31,766 | Multifamily | Arlington, VA | 3,122 | $ | 29,495 | $ | 36,932 | |||||||||||||||||||||||||||||
Digital Realty Trust, Inc. | Specialty | San Francisco, CA | 1,436 | $24,366 | $34,294 | Specialty | San Francisco, CA | 1,550 | $ | 26,073 | $ | 38,544 | |||||||||||||||||||||||||||||
Equity Residential | Multi-family | Chicago, IL | 2,700 | $24,315 | $33,351 | Multifamily | Chicago, IL | 2,700 | $ | 31,187 | $ | 40,593 | |||||||||||||||||||||||||||||
General Growth Properties, Inc. | Regional Mall | Chicago, IL | 1,700 | $22,615 | $36,677 | ||||||||||||||||||||||||||||||||||||
HCP, Inc. | Health Care | Irvine, CA | 190 | $12,407 | $20,019 | ||||||||||||||||||||||||||||||||||||
Essex Property Trust, Inc. | Multifamily | San Mateo, CA | 1,822 | $ | 20,577 | $ | 26,683 | ||||||||||||||||||||||||||||||||||
Host Hotels & Resorts, Inc. | Hotel | Bethesda, MD | 205 | $14,859 | $18,849 | Hotel | Bethesda, MD | 175 | $ | 13,375 | $ | 17,781 | |||||||||||||||||||||||||||||
The Macerich Company | Regional Mall | Santa Monica, CA | 853 | $9,919 | $15,260 | ||||||||||||||||||||||||||||||||||||
Prologis, Inc. | Industrial | San Francisco, CA | 1,565 | $35,350 | $47,741 | Industrial | San Francisco, CA | 1,712 | $ | 57,998 | $ | 73,220 | |||||||||||||||||||||||||||||
Public Storage | Self-Storage | Glendale, CA | 5,600 | $36,423 | $41,897 | Self-Storage | Glendale, CA | 5,900 | $ | 37,194 | $ | 43,178 | |||||||||||||||||||||||||||||
Regency Centers Corporation | Shopping Center | Jacksonville, FL | 450 | $ | 10,619 | $ | 14,802 | ||||||||||||||||||||||||||||||||||
Simon Property Group, Inc. | Regional Mall | Indianapolis, IN | 4,150 | $61,503 | $85,144 | Regional Mall | Indianapolis, IN | 3,750 | $ | 52,674 | $ | 77,619 | |||||||||||||||||||||||||||||
SL Green Realty Corp. | Office | New York, NY | 1,065 | $10,294 | $17,659 | Office | New York, NY | 1,033 | $ | 7,663 | $ | 14,186 | |||||||||||||||||||||||||||||
UDR, Inc. | Multifamily | Highlands Ranch, CO | 1,341 | $ | 14,776 | $ | 19,841 | ||||||||||||||||||||||||||||||||||
Ventas, Inc. | Health Care | Chicago, IL | 493 | $21,520 | $33,022 | Health Care | Chicago, IL | 516 | $ | 21,697 | $ | 34,309 | |||||||||||||||||||||||||||||
Vornado Realty Trust | Office | New York, NY | 3,989 | $15,759 | $26,904 | Diversified | New York, NY | 4,008 | $ | 13,509 | $ | 22,917 | |||||||||||||||||||||||||||||
Welltower, Inc. | Health Care | Toledo, OH | 392 | $23,618 | $36,759 | ||||||||||||||||||||||||||||||||||||
Welltower Inc. | Health Care | Toledo, OH | 443 | $ | 33,551 | $ | 50,382 | ||||||||||||||||||||||||||||||||||
Median | 1,501 | $23,116 | $33,187 | 1,631 | $ | 23,885 | $ | 35,621 | |||||||||||||||||||||||||||||||||
Average | 2,033 | $25,710 | $36,306 | 2,151 | $ | 30,731 | $ | 42,077 | |||||||||||||||||||||||||||||||||
Boston Properties, Inc. | 740 | $22,359 | $34,462 | 760 | $ | 23,808 | $ | 37,981 | |||||||||||||||||||||||||||||||||
Relative Percentile Rank | 31%-ile | 45%-ile | 60%-ile | 30%-ile | 50%-ile | 58%-ile |
Source: S&P Dow Jones Indices,Market Intelligence, a Division of S&P Global. Data as of December 31, 2017.2019.
(1) | Represents the number of employees on a |
(2) | Represents market value of outstanding common stock. May include the value of OP units, where available. |
(3) | Total capitalization includes debt and the book value of any preferred stock. |
FPL’sThe benchmarking review was based, in part, on information disclosed in the peer companies’ proxy statements filed in 20172019 (the latest year for which comprehensive data iswere publicly available). FPL also reviewed, supplemented by data from the 2017 NAREIT2019 Nareit Compensation Survey (which FPL conducts) and additional proprietary real estate compensation surveys conducted throughout the year by FPL for additional context. FPL’s review compared our executive pay practices to cash andnon-cash compensation awarded to executives in comparable positions at peer companies. FPL advised the Committee that the peer companies generally have compensation programs comparable to ours, with annual bonuses generally in the form of cash and annual long-term compensation generally in the form of equity with time-based vesting over three to five years and a focus on performance-based compensation.
Survey.
BOSTON PROPERTIES, INC. |› 2018 Proxy Statement 53
ROLE OF MANAGEMENT IN COMPENSATION DISCUSSION AND ANALYSISDECISIONS
Our CEO and President make recommendations to the Committee on the compensation of the other executive officers, who reportand our CEO makes recommendations to themthe Committee on the compensation of our President, in each case, based on their assessment of achievement of the Company’s strategicperformance versus corporate and tactical plans, executives’ individual performancegoals and a variety of other factors (e.g., compensation history, tenure, responsibilities, market data for competitive positions and retention concerns). The Committee considers these recommendations together with input from FPL. All final decisions affecting executive compensation decisions are made by the Committee.
| 2020 Proxy Statement | 61 |
COMPENSATION DISCUSSION AND ANALYSIS | ||
VII. NEW 2020 ANNUAL INCENTIVE PLAN |
VII. NEW 2020 ANNUAL INCENTIVE PLAN
Based on feedback received from our investors and advice received from FW Cook, the Committee established a new annual cash incentive plan for 2020 under which annual cash bonuses payable to our executive officers will have a direct link to the achievement of specific,pre-established goals.
Beginning in 2020 (the first fiscal year following the 2019Say-on-Pay vote), individual target bonus opportunities will be expressed in fixed dollar amounts. Actual earned amounts may range from zero (0) to 150% of target, depending on performance versuspre-established annual goals in each category.
Performance Level for Each Category | Payout (% of Target) | |
>= Maximum | 150% | |
Target | 100% | |
Threshold | 50% | |
<Threshold | 0 |
Annual bonuses will be based on performance in three categories: FFO per share, leasing and business/individual goals.
FFO per Share.FFO per share was selected as a key financial metric for the 2020 Annual Incentive Plan because it is the earnings metric most commonly used by investors and analysts to evaluate our performance on an absolute basis and relative to other REITs. The FFO per share goal is subject to adjustment for acquisitions, dispositions, financings, lease terminations and similar transactions and circumstances.
Leasing. For the 2020 Annual Incentive Plan, the Committee established specific corporate and regional leasing goals. Leasing will be evaluated in terms of short-term leasing and total leasing to encourage the executives to focus on current addressable vacancies and near-term roll-over, and to avoid scenarios in which leasing goals are met solely due to unexpected early renewals.
• | Business/Individual Goals. Business goals include milestone-oriented objectives related to acquisitions, dispositions, joint ventures, securing entitlements, and/or launching new developments. Business goals are based on regional priorities for the regional EVPs. For the CEO and President, business goals include a relevant subset of those regional goals, as well as goals related to executive management of the Company. For the CFO, business goals relate to balance sheet management, capital raising, and other finance department priorities. Individual goals include leadership and professional development goals, diversity initiatives, succession planning and other ESG priorities for each executive. Assessment of performance against the goals in this category will be determined based on an analysis of performance versus thepre-established goals, as well as other relevant factors (including,e.g., degree of difficulty, importance to BXP, headwinds and tailwinds during the year and other similar factors). |
The following table summarizes the performance measurement categories and weightings under the new 2020 Annual Incentive Plan.
Weightings | ||||||||||||||||||||
Annual Incentive Performance Measures | Thomas | Linde | LaBelle | Ritchey | Koop | |||||||||||||||
FFO per Share | 33.3 | % | 33.3 | % | 33.3 | % | 33.3 | % | 33.3 | % | ||||||||||
Leasing (Short-Term and Total) | ||||||||||||||||||||
Overall BXP | 33.3 | % | 33.3 | % | 16.7 | % | ||||||||||||||
LA Region + DC Region | 33.3 | % | ||||||||||||||||||
Boston Region | 33.3 | % | ||||||||||||||||||
Business & Individual Goals | ||||||||||||||||||||
Overall BXP | 33.3 | % | 33.3 | % | ||||||||||||||||
Finance – Capital Raising | 25.0 | % | ||||||||||||||||||
Finance – Other | 25.0 | % | ||||||||||||||||||
LA Region + DC Region | 33.3 | % | ||||||||||||||||||
Boston Region | 33.3 | % | ||||||||||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
The Committee approved the foregoing categories and specific goal targets in January 2020, prior to theCOVID-19 outbreak becoming a global pandemic that has had a material adverse effect on the global economy. In light of the changing business environment, the Committee mayre-evaluate the categories and targets, as appropriate.
62 | | 2020 Proxy Statement |
6› | COMPENSATION DISCUSSION AND ANALYSIS | |
VIII. OTHER COMPENSATION POLICIES |
Double-Trigger Acceleration of Vesting of Equity Awards Upon a Change of Control
Time-basedVIII. OTHER COMPENSATION POLICIES
›DOUBLE-TRIGGER ACCELERATION OF VESTING OF EQUITY AWARDS UPON A CHANGE OF CONTROL
All time-based equity awards made in 2015 or laterafter 2014 include “double-trigger” vesting, meaning that, if there is a “change of control” and the awards are not otherwise cancelled in connection with the change of control transaction, then they only become fully vested if, within 24 months after the change of control, the executive’s employment is terminated by the Company or its successor without “cause” or the executive resigns for “good reason.” We believe that this policy regarding acceleration of vesting upon a change of control is in line with current best practice while also continuing to remove potential disincentives for executives to pursue a change of control transaction that would benefit stockholders.
Although not required, the Committee decided to make the policy applicable to senior officers, including our Chief Executive Officer,CEO, who were entitled to single-trigger vesting under their employment agreements, and those executives voluntarily agreed to the change. The Committee believes that this demonstrates its and management’s responsiveness to stockholders and that the new policy addresses two key objectives:
• | Aligning executives’ interests with stockholders’ interests: |
• | Minimizing conflicts of |
Clawback Policy›CLAWBACK POLICY
We have a formal “clawback” policy, which allows us to recoup from all executive officers and certain other specified officersofficers’ incentive compensation paid on the basis of financial results that are subsequently restated. Under the policy, if we are required to prepare an accounting restatement due to materialnon-compliance with any financial reporting requirement, the Committee may require those officers to repay or forfeit “excess compensation,” which includes annual cash bonus and long-term incentive compensation in any form (including stock options, restricted stock and LTIP units, whether time-based or performance-based) received by them during the three-year period preceding the publication of the restated financial statements, that the Committee determines was in excess of the amount that they would have received had such compensation been determined based on the financial results reported in the restated financial statements.
The Committee may take into account any factors it deems reasonable in determining (1) whether to seek recoupment of previously paid excess compensation, (2) the amount of excess compensation to recoup from each individual officer, which may reflect whether the Committee concluded that he or she engaged in wrongdoing or committed grossly negligent acts or omissions, and (3) the form of the compensation to be recouped. The Committee intends to periodically review this policy and, as
54 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
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appropriate, conform it to any applicable final rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
›Gross-UpGROSS-UP for Excess Parachute PaymentsFOR EXCESS PARACHUTE PAYMENTS
In January 2014, we adopted a formal “no taxgross-up” policy with respect to our senior executives. Pursuant to this policy, we will not make or promise to make any taxgross-up payment to any senior executive in the future, other than payments in accordance with obligations existing at the time of the policy’s adoption or pursuant to arrangements applicable to our management employees generally, such as a relocation policy. All of the employment agreements that we have entered into with new senior executives since 2013, including our original and newcurrent employment agreements with our CEO, Mr. Thomas, do not provide for taxgross-up payments and, accordingly,payments. Accordingly, this policy representsformalized the formalization of the Committee’spre-existing then-existing practice with respect to taxgross-ups. In addition, our Senior Executive Severance Plan and Executive Severance Plan provide that executives who become eligible to participate in these plans in the future will not be entitled to any taxgross-up payments under the plans.
Policy Concerning Hedging and Pledging Transactions›POLICY CONCERNING HEDGING AND PLEDGING TRANSACTIONS
We have a policy prohibitingprohibit all employees, including our executive officers, and directors from engaging in short sales and derivative transactions, purchasing our securities on margin and pledging our securities as collateral for a loan. Transactions such as purchases and sales of publicly traded put and call options, short sales, hedging transactions such as prepaid variable forwards,
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equity swaps and collars create a heightened compliance risk or could create the appearance of misalignment between management and stockholders. In addition, securities held in a margin account or pledged as collateral may be sold without consent if the owner fails to meet a margin call or defaults on the loan, thus creating the risk that a sale may occur at a time when an officeremployee or director is aware of material,non-public information or otherwise is not permitted to trade in Company securities. An exception from the policy may beOur Board has never been asked to grant a waiver, nor has it ever granted onsuch acase-by-case basis where an executive officer or director who wishes to pledge Company securities as collateral for a loan (not including margin debt) clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities. No such exceptions have ever been granted. waiver, of this policy.
Mandatory Minimum Equity Ownership Policy for Senior Executives›MANDATORY MINIMUM EQUITY OWNERSHIP POLICY FOR SENIOR EXECUTIVES
To align senior management with our stockholders and demonstrate to the investment community that our senior management is personally committed to our continued financial success, we have a policy that requires the following officer positions to maintain equity ownership equal to a multiple of their base salaries as follows:
Title | Multiple of Base Salary | |||
Chief Executive Officer | 6.0x | |||
President | 5.0x | |||
Senior Executive Vice President | 5.0x | |||
Executive Vice President, Chief Financial Officer | 3.0x | |||
Executive Vice President, Regional Manager | 2.0x | |||
Senior Vice President | 1.5x |
If an executive’s ownership falls below the applicable guideline due solely to a decline in the value of our common stock, the executive will not be required to acquire additional shares to meet the
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guideline, but he or she will be required to retain all shares then held (except for shares withheld to pay withholding taxes or the exercise price of options) until such time as the executive again attains the target multiple.
Employees who are hired or promoted to senior management positions will have a five-year period beginning on January 1 of the year following their appointment to achieve this ownership requirement. Exceptions may be made for significant extenuating personal circumstances. The types of securities that will be counted toward the equity ownership requirement include shares of our common stock, common units and LTIP units (excluding performance-based LTIP units until and unless they have been earned), in each case both vested and unvested, as well as shares acquired and held through our stock purchase and dividend reinvestment plans. Stock options will not be counted.
›LTIP UNITS
Since 2003, we have used a class of partnership interests in our Operating Partnership, called long-term incentive units, or LTIP units, as a form of equity-based award for annual long-term incentive equity compensation. LTIP units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes, meaning that initially they are not economically equivalent in value to a share of our common stock, but over time can increase in value toone-for-one parity with common stock by operation of special tax rules applicable to profits interests. LTIP units are designed to offer executives a long-term incentive comparable to restricted stock, while allowing them to enjoy a more favorable income tax treatment. Each LTIP unit awarded is deemed equivalent to an award of one share of common stock reserved under our incentive equity plan. The key difference between LTIP units and restricted stock is that at the time of award, LTIP units do not have full economic parity with common units, but can achieve such parity over time upon the occurrence of specified events in accordance with partnership tax rules. Until and unless such parity is reached, the value that an executive will realize for a given number of vested LTIP units is less than the value of an equal number of shares of our common stock.
Under the MYLTIP awards, during the performance period holders of LTIP units will receive distributions equal toone-tenth (1/10th) of the amount of regular quarterly distributions paid on a common unit, but will not receive any special distributions. After the end of the performance period, holders of earned LTIP units, both vested and unvested, will be entitled to receive
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distributions in an amount per LTIP unit equal to the distributions, both regular and special, payable on a common unit (which equal per share dividends (both regular and special) on our common stock). LTIP units awarded with time-based vesting conditions only, both vested and unvested, are entitled to receive distributions in an amount per LTIP unit equal to the distributions, both regular and special, payable on a common unit.
›EMPLOYMENT AGREEMENTS
We have employment agreements with each of our NEOs. (See “Compensation of Executive Officers – Employment Agreements”) For NEOs other than Mr. Thomas, these agreements provide for a certain level of severance, generally the sum of base salary plus the prior year’s cash bonus, 12 additional months of vesting in equity-based awards and participation in our health plan for up to 12 months, in the event of a termination of employment by us without cause or by the executives for good reason. The employment agreement with Mr. Thomas provides for stipulated severance benefits in lieu of participation in severance plans for which other NEOs are eligible. In return, each NEO agrees, during the term of employment and for one year thereafter, not to compete with us, solicit our tenants or employees or interfere with our relationship with our tenants, suppliers, contractors, lenders, employees or with any governmental agency. We believe that these agreements are fair to the NEOs and to our stockholders and, because the severance benefits are negotiated at the time of the agreement, avoid the need for protracted negotiations in the event of termination.
›CHANGE IN CONTROL ARRANGEMENTS
We have an employment agreement with Mr. Thomas that provides him with cash severance and certain benefits in the event of his termination under certain circumstances within 24 months following a change in control. Although Mr. Thomas was entitled to “single-trigger” vesting upon a change in control under his original employment agreement, he has agreed to be subject to the “double-trigger” vesting policy adopted for all time-based LTI equity awards made after 2014. We also have two change in control severance plans, one for our President, Senior Executive Vice President and Executive Vice Presidents, and the other for our Senior Vice Presidents and those Vice Presidents with ten (10) or more years of tenure with us. These plans also provide cash severance and certain benefits in the event of termination of employment under certain circumstances within 24 months following a change in control. The two change in control severance plans are “double trigger” arrangements, providing severance benefits only upon involuntary termination or constructive termination of the executive officer following a change in control. (See “Compensation of Executive Officers – Potential Payments Upon Termination or Change in Control”) Officers who became eligible under the two severance plans described above prior to their amendment in January 2014 upon adoption by the Committee of a formal “no taxgross-up” policy are entitled to agross-up payment in the event they become subject to the 20% golden parachute excise tax. This was market practice when these plans were adopted in 1998. Mr. Thomas is not entitled to a taxgross-up payment under his employment agreement.
In our experience, change in control cash severance protection for executive officers is common in the REIT industry. Our Committee believes it is fair to provide severance protection in the event of an involuntary termination or constructive termination of employment following a change in control because very often senior manager positions are eliminated following a change in control. The Committee believes that agreeing in advance to provide severance benefits in the event of an involuntary termination or constructive termination of employment following a change in control helps reinforce and encourage the continued attention and dedication of senior management to their assigned duties without distraction in the face of an actual or threatened change in control and helps ensure that management is motivated to negotiate the best consideration for our stockholders. For treatment of equity awards in the event of a change in control, please see“– Double-Trigger Acceleration of Vesting of Equity Award Grant PolicyAwards upon a Change of Control”above.
›PERQUISITES
We provide Messrs. Linde, Ritchey and Koop a monthly car allowance of $750 and we provide all of our executive officers a designated parking space. Mr. Thomas’ employment agreement provides that he is entitled to the use of a Company-owned or leased vehicle, but Mr. Thomas has declined this benefit at all times since 2013. Apart from these arrangements, we do not provide any other perquisites to our executive officers.
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›DEFERRED COMPENSATION PLAN
We offer a deferred compensation plan that enables our executives to defer up to 20% of their base salaries and bonuses. The amounts deferred are not included in the executive’s current taxable income and, therefore, are not currently deductible by us. The executives select from a limited number of mutual funds, which serve as measurement funds, and the deferred amounts are increased or decreased to correspond to the market value of the mutual fund investments. Because the measurement funds are publicly traded securities, we do not consider any of the earnings credited under the deferred compensation plan to be “above market.” We do not provide any matching contribution to any executive officer who participates in this plan, other than a limited amount to make up for any loss of matching contributions under our Section 401(k) plan. We have made this plan available to our executives in order to ensure that our benefits are competitive. See “Compensation of Executive Officers – Nonqualified Deferred Compensation.”
›RETIREMENT AND HEALTH AND WELFARE BENEFITS
We have never had a traditional or defined benefit pension plan. We maintain a Section 401(k) retirement plan in which all salaried employees can participate, which provides a Company matching contribution of 200% of the first 3% of compensation contributed to the plan (utilizing earnings not in excess of an amount established by the Internal Revenue Service ($280,000 in 2019)). Other benefits, such as health and dental plans, group term life insurance, short- and long-term disability insurance and travel accident insurance, are also available generally to all of our salaried employees. Our executives participate in Company-sponsored benefit programs available broadly to generally all of our salaried employees, including our employee stock purchase plan and our Section 401(k) plan.
›DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Committee’s policy is to consider the tax treatment of compensation paid to our executive officers while simultaneously seeking to provide our executives with appropriate rewards for their performance. Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), a publicly-held corporation may not deduct compensation of more than $1 million paid to any “covered employee.” Substantially all of the services rendered by our executive officers were performed on behalf of our operating partnership or its subsidiaries. The Internal Revenue Service has issued a series of private letter rulings which indicate that compensation paid by an operating partnership to executive officers of a REIT that serves as its general partner is not subject to limitation under Section 162(m) to the extent such compensation is attributable to services rendered to the operating partnership. We have not obtained a ruling on this issue, but have no reason to believe that the same conclusion would not apply to us. However, in December 2019, the Internal Revenue Service proposed new regulations that may cause the limits on deductibility under Section 162(m) to apply to such compensation. To the extent that compensation paid to our executive officers is subject to and does not qualify for deduction under Section 162(m), our Committee 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. Because we qualify as a REIT under the Code, we generally distribute at least 100% of our net taxable income each year and therefore do not pay federal income tax. As a result, and based on the level of cash compensation paid to our executive officers, the possible loss of a federal tax deduction would not be expected to have a material impact on us.
›ACCOUNTING FOR STOCK-BASED COMPENSATION
We account for stock-based awards in accordance with the requirements of ASC Topic 718.
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›ASSESSMENT OF COMPENSATION-RELATED RISKS
The Committee is responsible for overseeing the risks relating to compensation policies and practices affecting senior management on an ongoing basis. The Committee believes that, because of the following factors, there is a low likelihood that our compensation policies and practices would encourage excessive risk-taking:
Risk Mitigation Factors |
• our policies and programs are generally intended to encourage executives to focus on long- term objectives; • overall compensation is maintained at levels that are competitive with the market; • the mix of compensation rewards long-term performance with a significantat-risk component; • beginning with bonuses for 2020 (paid in 2021), annual cash bonuses for executives will be linked to performance against goals in three categories with specific weightings and each executive has target and maximum bonus opportunities; • except for those employees who satisfy the conditions for Qualified Retirement, all equity awards are subject to multi-year vesting (see“– Potential Payments Upon Termination or Change in Control – Retirement Eligibility Provisions for LTI Equity Awards”); • executive officers are subject to minimum stock ownership guidelines and limitations on trading in our securities, including prohibitions on hedging and pledging; and • a clawback policy permits the Company to recoup compensation paid on the basis of financial results that are subsequently restated. |
›EQUITY AWARD GRANT POLICY
We have a policy that annual grants to employees are approved by the Committee in late January or around the third or fourth weekearly February of January each year, with an effective grant date immediately following the closing of the NYSE on the second trading day after we publicly release financial results for the prior year. We believe this policy provides the necessary certainty and transparency for both employees and stockholders, while allowing the Committee desired flexibility.
Our Committee approves equity awards in dollar values. To the extent these awards are paid in the form of full-value awards (either shares of restricted stock and/or LTIP units), the number of shares/units granted is calculated by dividing the dollar value of the approved awards by the closing market price on the NYSE of a share of our common stock on the effective date of grant. To the extent these awards are made in the form of stock options, the number of shares underlying option grants is determined by dividing the dollar value of the approved awards by the fair value of aten-year option with the exercise price equal to the closing market price on the NYSE of a share of our common stock on the effective date of grant, as calculated by an independent valuation expert in accordance with ASC Topic 718 using assumptions approved by the Committee. The Equity Award Grant Policy does not apply to MYLTIP awards because they are not “full-value” awards upon issuance and their value depends on our future TSR performance; accordingly, consistent with past practice for performance-basedperformance- based equity awards, the Committee determined that the MYLTIP baseline share price, from which TSR performance is measured, should be based on the average closing stock price for the five trading days prior to and including the effective date of grant.
LTIP Units
Since 2003, we have used a class of partnership interests in our Operating Partnership, called long term incentive units, or LTIP units, as a form of equity-based award for annual long-term incentive equity compensation. LTIP units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes, meaning that initially they are not economically equivalent in value to a share of our common stock, but over time can increase in value toone-for-one parity with common stock by operation of special tax rules applicable to profits interests. LTIP units are designed to offer executives a long-term incentive comparable to restricted stock, while allowing them to enjoy a more favorable income tax treatment. Each LTIP unit awarded is deemed equivalent to an award of one share of common stock reserved under our incentive equity plan. The key difference between LTIP units and restricted stock is that at the time of award, LTIP units do not have full economic parity with common units, but can achieve such parity over time upon the occurrence of specified events in accordance with partnership tax rules. Until and unless such parity is reached, the value that an executive will realize for a given number of vested LTIP units is less than the value of an equal number of shares of our common stock.
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COMPENSATION DISCUSSION AND ANALYSIS
IX. OTHER COMPENSATION POLICIES
Under the 2016, 2017 and 2018 MYLTIP, during the performance period holders of LTIP units will receive distributions equal toone-tenth (1 / 10th) of the amount of regular quarterly distributions paid on a common unit, but will not receive any special distributions. After the end of the performance period, holders of earned LTIP units, both vested and unvested, will be entitled to receive distributions in an amount per LTIP unit equal to the distributions, both regular and special, payable on a common unit (which equal per share dividends (both regular and special) on our common stock). LTIP units awarded with time-based vesting conditions only, both vested and unvested, are entitled to receive distributions in an amount per LTIP unit equal to the distributions, both regular and special, payable on a common unit.
Employment Agreements
We have employment agreements with each of our NEOs. (See “Compensation of Executive Officers – Potential Payments Upon Termination or Change in Control” beginning on page 69.) For NEOs other than Mr. Thomas, these agreements provide for a certain level of severance, generally the sum of base salary plus the prior year’s cash bonus, 12 additional months of vesting in equity-based awards and participation in our health plan for up to 12 months, in the event of a termination of employment by us without cause or by the executives for good reason. The employment agreement with Mr. Thomas provides for stipulated severance benefits in lieu of participation in severance plans for which other NEOs are eligible. In return, each executive agrees, during the term of employment and for one year thereafter, not to compete with us, solicit our tenants or employees or interfere with our relationship with our tenants, suppliers, contractors, lenders, employees or with any governmental agency. We believe that these agreements are fair to the executives and to our stockholders and, because the severance benefits are negotiated at the time of the agreement, avoid the need for protracted negotiations in the event of termination.
Change in Control Arrangements
We have an employment agreement with Mr. Thomas that provides him with cash severance and certain benefits in the event of his termination under certain circumstances within 24 months following a change in control. Although Mr. Thomas was entitled to “single-trigger” vesting upon a change in control under his original employment agreement, he has agreed to be subject to the “double-trigger” vesting policy adopted for all time-based LTI equity awards made in 2015 or later. We also have two change in control severance plans, one for our President, Senior Executive Vice President and Executive Vice Presidents, and the other for our Senior Vice Presidents and those Vice Presidents with ten (10) or more years of tenure with us. These plans also provide cash severance and certain benefits in the event of termination of employment under certain circumstances within 24 months following a change in control. The two change in control severance plans are “double trigger” arrangements, providing severance benefits only upon involuntary termination or constructive termination of the executive officer following a change in control. (See “Compensation of Executive Officers – Potential Payments Upon Termination or Change in Control” beginning on page 69.) Officers who became eligible under the two severance plans described above prior to their amendment in January 2014 upon adoption by the Committee of a formal “no taxgross-up” policy are entitled to agross-up payment in the event they become subject to the 20% golden parachute excise tax. This was market practice when these plans were adopted in 1998. Mr. Thomas is not entitled to a taxgross-up payment under his employment agreement.
In our experience, change in control cash severance protection for executive officers is common in the REIT industry. Our Committee believes it is fair to provide severance protection in the event of an involuntary termination or constructive termination of employment following a change in control because very often senior manager positions are eliminated following a change in control. By agreeing up front to provide severance benefits in the event of an involuntary termination or constructive
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termination of employment following a change in control, the Committee believes we can reinforce and encourage the continued attention and dedication of senior management to their assigned duties without distraction in the face of an actual or threatened change in control and ensure that management is motivated to negotiate the best consideration for our stockholders. For treatment of equity awards in the event of a change in control, please see“– Double-Trigger Acceleration of Vesting of Equity Awards upon a Change of Control”above.
Perquisites
We provide Messrs. Linde, Ritchey and Koop a monthly car allowance of $750 and we provide all of our executive officers a designated parking space. Mr. Thomas’ employment agreement provides that he is entitled to the use of a Company-owned or leased vehicle, but Mr. Thomas has declined this benefit at all times since 2013. Apart from these arrangements, we do not provide any other perquisites to our executive officers.
Deferred Compensation Plan
We offer a deferred compensation plan that enables our executives to defer up to 20% of their base salaries and bonuses. The amounts deferred are not included in the executive’s current taxable income and, therefore, are not currently deductible by us. The executives select from a limited number of mutual funds which serve as measurement funds, and the deferred amounts are increased or decreased to correspond to the market value of the mutual fund investments. Because the measurement funds are publicly traded securities, we do not consider any of the earnings credited under the deferred compensation plan to be “above market.” We do not provide any matching contribution to any executive officer who participates in this plan, other than a limited amount to make up for any loss of matching contributions under our Section 401(k) plan. We have made this plan available to our executives in order to ensure that our benefits are competitive. See “Compensation of Executive Officers – Nonqualified Deferred Compensation” beginning on page 68.
Retirement and Health and Welfare Benefits
We have never had a traditional or defined benefit pension plan. We maintain a Section 401(k) retirement plan in which all salaried employees can participate which provides a Company matching contribution of 200% of the first 3% of compensation contributed to the plan (utilizing earnings not in excess of an amount established by the Internal Revenue Service ($270,000 in 2017)). Other benefits, such as health and dental plans, group term life insurance, short- and long-term disability insurance and travel accident insurance, are also available generally to all of our salaried employees. Our executives participate in Company-sponsored benefit programs available broadly to generally all of our salaried employees, including our employee stock purchase plan and our Section 401(k) plan.
Deductibility of Executive Compensation
The Committee’s policy is to consider the tax treatment of compensation paid to our executive officers while simultaneously seeking to provide our executives with appropriate rewards for their performance. Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), a publicly-held corporation may not deduct compensation of more than $1 million paid to any “covered employee” unless certain exceptions are met primarily related to performance-based compensation. Substantially all of the services rendered by our executive officers were performed on behalf of our operating partnership or its subsidiaries. The Internal Revenue Service has issued a series of private letter rulings which indicate that compensation paid by an operating partnership to executive officers of a REIT that serves as its general partner is not subject to limitation under Section 162(m) to the extent such
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compensation is attributable to services rendered to the operating partnership. We have not obtained a ruling on this issue, but have no reason to believe that the same conclusion would not apply to us. To the extent that compensation paid to our executive officers is subject to and does not qualify for deduction under Section 162(m), our Committee 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. Because we qualify as a REIT under the Code, we generally distribute at least 100% of our net taxable income each year and therefore do not pay federal income tax. As a result, and based on the level of cash compensation paid to our executive officers, the possible loss of a federal tax deduction would not be expected to have a material impact on us.
Accounting for Stock-Based Compensation
We account for stock-based awards in accordance with the requirements of ASC Topic 718.
Assessment of Compensation-Related Risks
The Committee is responsible for overseeing the risks relating to compensation policies and practices affecting senior management on an ongoing basis. The Committee believes that because of the following there is a low likelihood that our compensation policies and practices would encourage excessive risk-taking:
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION Section 14A(a)(1) of the Exchange Act generally requires each public company to include in its proxy statement a separate resolution subject to a non-binding stockholder vote to approve the compensation of the Company’s NEOs, as disclosed in its proxy statement pursuant to Item 402 of Regulation S-K, not less frequently than once every three years. This is commonly known as a “Say-on-Pay” proposal or resolution. At our 2017 annual meeting of stockholders, our stockholders voted on, among other matters, a proposal regarding the frequency of holding a non-binding, advisory vote on the compensation of our NEOs. More than 85% of the votes cast on the frequency proposal were cast in favor of holding a non-binding, advisory vote on the compensation of the Company’s NEOs every year, which was consistent with the recommendation of our Board of Directors. Our Board of Directors considered the voting results with respect to the frequency proposal and other factors, and the Board of Directors currently intends for the Company to hold a non-binding, advisory vote on the compensation of the Company’s NEOs every year until the next required advisory vote on the frequency of holding the non-binding, advisory vote on the compensation of our NEOs, which will occur not later than the 2023 annual meeting of stockholders. Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the 2020 annual meeting: “RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in this proxy statement pursuant to the Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.” The vote is advisory, and therefore not binding on Boston Properties, our Board of Directors or the Compensation Committee. However, our Board of Directors and our Compensation Committee value the opinions of our stockholders and intend to take into account the results of the vote when considering future compensation decisions for our NEOs. The affirmative vote of a majority of shares of common stock present in person or represented by proxy at the meeting and entitled to vote on this proposal is required for the approval of this proposal. Abstentions shall be included in determining the number of shares present and entitled to vote on the proposal, thus having the effect of a vote against the proposal. Broker non-votes,Risk Mitigation FactorsSection 14A(a)(1) of the Exchange Act generally requires each public company to include in its proxy statement a separate resolution subject to anon-binding stockholder vote to approve the compensation of the Company’s NEOs, as disclosed in its proxy statement pursuant to Item 402 of RegulationS-K, not less frequently than once every three years. This is commonly known as a“Say-on-Pay” proposal or resolution.At our 2017 annual meeting of stockholders, our stockholders voted on, among other matters, a proposal regarding the frequency of holding anon-binding, advisory vote on the compensation of our NEOs. More than 85% of the votes cast on the frequency proposal were cast in favor of holding a non-binding, advisory vote on the compensation of the Company’s named executive officers every year, which was consistent with the recommendation of our Board of Directors. Our Board of Directors considered the voting results with respect to the frequency proposal and other factors, and the Board of Directors currently intends for the Company to hold anon-binding, advisory vote on the compensation of the Company’s NEOs every year until the next required advisory vote on the frequency of holding thenon-binding, advisory vote on the compensation of our NEOs, which will occur not later than the 2023 annual meeting of stockholders.Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the 2018 annual meeting:“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in this proxy statement pursuant to the Item 402 of RegulationS-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”The vote is advisory, and therefore not binding on Boston Properties, the Compensation Committee or our Board of Directors. However, our Board of Directors and our Compensation Committee value the opinions of our stockholders and intend to take into account the results of the vote when considering future compensation decisions for our named executive officers.The Board of Directors unanimously recommends a voteFOR the approval of the Company’s NEO compensation on an advisory basis. Properly authorized proxies solicited by the Board of Directors will be votedFORthis proposal unless instructions to the contrary are given.The affirmative vote of a majority of shares of common stock present in person or represented by proxy at the meeting and entitled to vote on this proposal is required for the approval of this proposal. Abstentions shall be included in determining the number of shares present and entitled to vote on the proposal, thus having the effect of a vote against the proposal. BrokerPROPOSAL 2:
83 BOSTON PROPERTIES, INC.
✔ | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFOR THE APPROVAL OF THE |
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9› | PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit our consolidated financial statements. The Audit Committee has selected and appointed PricewaterhouseCoopers LLP as our independent registered public accounting firm to audit our consolidated financial statements for the year ending December 31, 2020. PricewaterhouseCoopers LLP has audited our consolidated financial statements continuously since our initial public offering in June 1997. In order to ensure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. Further, in conjunction with the mandated rotation of the PricewaterhouseCoopers LLP’s lead engagement partner, the Audit Committee and its Chair were directly involved in the selection of PricewaterhouseCoopers LLP’s lead engagement partner. The members of the Audit Committee and the Board of Directors believe that the continued retention of PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm is in the best interests of Boston Properties and its stockholders.
Although ratification by stockholders is not required by law or by our By-laws, the Audit Committee believes that submission of its selection to stockholders is a matter of good corporate governance. Even if the appointment is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time if the Audit Committee believes that such a change would be in the best interests of Boston Properties and its stockholders. If our stockholders do not ratify the appointment of PricewaterhouseCoopers LLP, the Audit Committee will consider that fact, together with such other factors it deems relevant, in determining its next selection of independent auditors.
We expect that a representative of PricewaterhouseCoopers LLP will attend the annual meeting of stockholders, will have an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions.
The affirmative vote of a majority of shares of common stock present in person or represented by proxy at the meeting and entitled to vote on this proposal is required for the ratification of the appointment of PwC. Abstentions shall be included in determining the number of shares present and entitled to vote on the proposal, thus having the effect of a vote against the proposal. Broker non-votes, if any, are not counted in determining the number of shares present and entitled to vote and will therefore have no effect on the outcome.
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9› | PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
FEES TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee is responsible for the audit fee negotiations associated with the retention of PricewaterhouseCoopers LLP (“PwC”). Aggregate fees for professional services rendered by PwC for the years ended December 31, 2019 and 2018 were as follows:
2019 | 2018 | |||||||
Audit Fees | ||||||||
Recurring audit, quarterly reviews and accounting assistance for new accounting standards and potential transactions | $ | 2,681,649 | $ | 2,711,004 | ||||
Comfort letters, consents and assistance with documents filed with the SEC and securities offerings | 168,644 | 115,107 | ||||||
Subtotal | 2,850,293 | 2,826,111 | ||||||
Audit-Related Fees | ||||||||
Audits required by lenders, joint ventures, tenants and other attestation reports | 447,575 | 420,350 | ||||||
Tax Fees | ||||||||
Recurring tax compliance and REIT and other compliance matters | 444,241 | 420,084 | ||||||
Tax planning and research | 55,999 | 84,595 | ||||||
State and local tax examinations | 28,307 | 28,447 | ||||||
Subtotal | 528,547 | 533,126 | ||||||
All Other Fees | ||||||||
Software licensing fee | 2,756 | 2,700 | ||||||
Total | $ | 3,829,171 | $ | 3,782,287 |
AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY
The Audit Committee has approved a policy concerning the pre-approval of audit and non-audit services to be provided by PwC, our independent registered public accounting firm. The policy requires that all services provided by PwC to us, including audit services, audit-related services, tax services and other services, must be pre-approved by the Audit Committee. In some cases, pre-approval is provided by the full Audit Committee for up to a year, relates to a particular category or group of services and is subject to a particular budgeted maximum. In other cases, specific pre-approval is required. The Audit Committee has delegated authority to the Chair of the Audit Committee to pre-approve additional services, and any such pre-approvals must then be communicated to the full Audit Committee.
The Audit Committee approved all audit and non-audit services provided to us by PwC during the 2019 and 2018 fiscal years and none of the services described above were approved pursuant to Rule 2-01(c)(7)(i)(c) of Regulation S-X, which relates to circumstances where the Audit Committee pre-approval requirement is waived.
FEES TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee is responsible for the audit fee negotiations associated with the retention of PricewaterhouseCoopers LLP. Aggregate fees for professional services rendered by PricewaterhouseCoopers LLP for the years ended December 31, 2017 and 2016 were as follows:
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9› | PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
proposal. Brokernon-votes, if any, are not counted in determining the number of shares present and entitled to vote and will therefore have no effect on the outcome.
The members of the Audit Committee of the Board of Directors of Boston Properties submit this report in connection with the committee’s review of the financial reports for the fiscal year ended December 31, 2019 as follows:
1. | The Audit Committee has reviewed and discussed with management the audited financial statements for Boston Properties, Inc. for the fiscal year ended December 31, |
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3. | The Audit Committee
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Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for filing with the SEC.
The Audit Committee operates pursuant to a charter that was approved by our Board of Directors. A copy of the Audit Committee Charter is available on our website athttp://www.bxp.com under the heading “Corporate Governance.”
Submitted by the Audit Committee:
David A. Twardock, Chair
Karen E. Dykstra
William H. Walton, III
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INFORMATION ABOUT THE ANNUAL MEETING
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS
In order to both save money and help conserve natural resources, we are making this proxy statement and our 2019 Annual Report, including a copy of our annual report on Form 10-K and financial statements for the year ended December 31, 2019, available to our stockholders electronically via the Internet instead of mailing the full set of printed proxy materials, in accordance with the rules of the SEC. On or about April 3, 2020, we began mailing to many of our stockholders a Notice of Internet Availability of Proxy Materials (“Notice”) containing instructions on how to access this proxy statement and our annual report online, as well as instructions on how to vote. Also on or about April 3, 2020, we began mailing printed copies of these proxy materials to stockholders that have requested printed copies. If you received a Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you request a copy. Instead, the Notice instructs you on how to access and review all of the important information contained in the proxy statement and annual report. The Notice also instructs you on how you may vote via the Internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice. Our 2019 annual report is not part of the proxy solicitation material.
At the annual meeting, stockholders will be asked to vote upon the matters set forth in the accompanying notice of annual meeting, including the election of directors, an advisory resolution on named executive officer compensation and the ratification of the appointment of our independent registered public accounting firm.
PRESENTATION OF OTHER MATTERS AT THE ANNUAL MEETING
We are not currently aware of any other matters to be presented at the 2020 annual meeting other than those described in this proxy statement. If any other matters not described in this proxy statement are properly presented at the meeting, any proxies received by us will be voted in the discretion of the proxy holders.
If you were a stockholder of record as of the close of business on March 25, 2020, which is referred to in this proxy statement as the “record date,” you are entitled to receive notice of the annual meeting and to vote the shares of common stock held as of the close of business on the record date. Each stockholder is entitled to one vote for each share of common stock you held as of the close of business on the record date. Holders of common units, LTIP units, preferred stock and deferred stock units are not entitled to vote such securities on any of the matters presented at the 2020 annual meeting.
All stockholders of record of shares of common stock of Boston Properties, Inc. at the close of business on the record date, or their designated proxies, are authorized to attend the annual meeting. Each stockholder 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 stockholder 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 as of the record date, such as an account statement reflecting your stock ownership as of the record date, a copy of the voting instruction card provided by your broker, bank or other nominee, or other similar evidence of ownership. We reserve the right to determine the validity of any purported proof of beneficial ownership. If you do not have proof of ownership, you may not be admitted to the annual meeting. Cameras, recording devices and other electronic devices will not be permitted, and attendees may be subject to security inspections and other security precautions. You may obtain directions to the annual meeting on our website athttp://www.bxp.com/proxy.
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10› | INFORMATION ABOUT THE ANNUAL MEETING OFFICERS
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The presence, in person or by proxy, of holders of at least a majority of the total number of outstanding shares of common stock entitled to vote is necessary to constitute a quorum for the transaction of business at the annual meeting. As of the record date, there were 155,309,004 shares of common stock outstanding and entitled to vote at the annual meeting. Each share of common stock outstanding on the record date is entitled to one vote on each matter properly submitted at the annual meeting and, with respect to the election of directors, one vote for each director to be elected. Abstentions or “broker non-votes” (i.e., shares represented at the meeting held by brokers, as to which instructions have not been received from the beneficial owners or persons entitled to vote such shares and with respect to which, on one or more but not all matters, the broker does not have discretionary voting power to vote such shares) will be counted for purposes of determining whether a quorum is present for the transaction of business at the annual meeting.
Voting in Person at the Meeting
If you are a stockholder of record and attend the annual meeting, you may vote in person at the meeting. If your shares of common stock are held in street name and you wish to vote in person at the meeting, you will need to obtain a “legal proxy” from the broker, bank or other nominee that holds your shares of common stock of record.
Voting by Proxy for Shares Registered Directly in the Name of the Stockholder shares represented at the meeting held by brokers, as to which instructions have not been received from the beneficial owners or persons entitled to vote such shares and with respect to which, on one or more but not all matters, the broker does not have discretionary voting power to vote such shares) will be counted for purposes of determining whether a quorum is present for the transaction of business at the annual meeting.
›VOTING IN PERSON AT THE MEETING
If you are a stockholder of record and attend the annual meeting, you may vote in person at the meeting. If your shares of common stock are held in street name and you wish to vote in person at the meeting, you will need to obtain a “legal proxy” from the broker, bank or other nominee that holds your shares of common stock of record.
›VOTING SHARES REGISTERED DIRECTLY IN THE NAME OF THE STOCKHOLDER OR HELD IN SOLIUM SHAREWORKS
If you hold your shares of common stock 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 shares of common stock in one of the following ways:
Vote by Internet. You may vote via the Internet by following the instructions provided in the Notice or, if you received printed materials, on your proxy card. The website for Internet voting is printed on the Notice and also on your proxy card. Please have your Notice or proxy card in hand. Internet voting is available 24 hours per day until 11:59 p.m., Eastern Time, on May 19, 2020. You will receive a series of instructions that will allow you to vote your shares of common stock. You will also be given the opportunity to confirm that your instructions have been properly recorded.
If you vote via the Internet, you do not need to return your proxy card.
Vote by Telephone. If you received printed copies of the proxy materials, 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 19, 2020. 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 shares of common stock. You will also be given the opportunity to confirm that your instructions have been properly recorded. If you did not receive printed materials and would like to vote by telephone, you must request printed copies of the proxy materials by following the instructions on your Notice.
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 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 your Notice. If you are a Boston Properties employee holding shares of common stock on the Solium Shareworks equity portal, the control number you receive on your Notice or proxy card also covers shares of common stock held in your Solium Shareworks account. You may vote these shares via the Internet, by telephone or by completing and returning a proxy card as described above. Your submission of voting instructions for shares of common stock held in your Solium Shareworks account instructs the plan administrator how to vote those shares; it does not result in the appointment of a proxy to vote those shares. Instructions regarding shares held in your Solium Shareworks account must be received by 11:59 p.m., Eastern Time, on May 17, 2020.
› VOTING BY PROXY FOR SHARES REGISTERED IN STREET NAME If your shares of common stock are held in street name, then you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares of common stock voted. You may revoke your proxy at any time before it has been exercised by: filing a written revocation with the Secretary of Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103; submitting a new proxy by telephone, Internet or proxy card after the time and date of the previously submitted proxy; or appearing in person and voting by ballot at the annual meeting. If you are a stockholder of record as of the record date attending the annual meeting you may vote in person whether or not a proxy has been previously given, but your presence (without further action) at the annual meeting will not constitute revocation of a previously given proxy. ACCESSING BOSTON PROPERTIES’ PROXY MATERIALS ELECTRONICALLY This proxy statement and our 2019 annual report are available athttp://www.bxp.com/proxy. Instead of receiving copies of our future annual reports, proxy statements, proxy cards and, when applicable, Notices of Internet Availability of Proxy Materials, by mail, we encourage you to elect to receive an email that will provide electronic links to our proxy materials and also will give you an electronic link to the proxy voting site. Choosing to receive your future proxy materials online will save us the cost of producing and mailing the proxy materials or Notices of Internet Availability of Proxy Materials to you and help conserve natural resources. You may sign up for electronic delivery by visitinghttp://www.bxp.com/proxy. If you and other residents at your mailing address own shares of common stock 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 Internet Availability of Proxy Materials, notice of annual meeting and/or proxy statement. This procedure, known as “householding,” is intended to reduce the volume of duplicate information stockholders receive and also reduce our printing and postage costs. Under applicable law, if you consented or were deemed to have consented, your broker, bank or other nominee may send one copy of our annual report, Notice of Internet Availability of Proxy Materials, notice of annual meeting and/or proxy statement to your address for all residents that own shares of common stock in street name. If you wish to revoke your consent to householding, you must contact your broker, bank or other nominee. If you are receiving multiple copies of our annual report, Notice of Internet Availability of Proxy Materials, notice of annual meeting and/or proxy statement, you may be able to request householding by contacting your broker, bank or other nominee. If you wish to request extra copies free of charge of our annual report or proxy statement, please send your request to Investor Relations, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103; call us with your request at (617) 236-3822; or visit our website athttp://www.bxp.com.
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